Wednesday, March 29, 2023

NATO on the War in Ukraine

A recent doorstep statement by NATO Secretary General Jens Stoltenberg clearly expresses the narrative behind the conflict in Ukraine.  His comments were made in advance of the meetings of NATO Defence Ministers in Brussels which were held on the 14th and 15th of February 2023.


Here are some key excerpts from Stoltenberg's comments to the world's media as found on the Newsroom page of the NATO website:


"Next week we mark the first year of the terrible war in Ukraine, the full-fledged invasion by Russia against Ukraine.


And we see no signs that President Putin is preparing for peace. What we see is the opposite, he is preparing for more war, for new offensives and new attacks.


So it makes it even more important that NATO Allies and partners provide more support to Ukraine. And we will meet later on today in the US-led Contact Group for Ukraine and address the urgent needs for increased support to Ukraine.


Not least the need to provide more ammunition and also how to ramp up production and strengthen our defence industry to be able to provide the necessary ammunition to Ukraine and also to replenish our own stocks."


It would appear that replenishing NATO's stocks of ammunition would be key given that Ukrainians are not fighting Russia in the "Western way" when it comes to the use of ammunition as shown here:


...and quoted here:


"(United Kingdom Secretary of Defence) Wallace said Britain had been buying and trading ammunition "that is Soviet" in standard while also helping the Ukrainian military convert to unlock "access to our ammunition stocks".


"At the same time we're training to make sure it's used in a way that's very productive and accurate," he said.


"The Russian or the Soviet way of fighting is very ammunition heavy, massive artillery barrages, and that's never how we have organised ourselves to fight in NATO," he said."

Apparently, it's easy come, easy go when you are getting seemingly endless supplies of ammunition donated to your cause.


When asked this question by Lorne Cook from the Associated Press:


"Over the last year, NATO has gone from providing non-lethal assistance from Allies to providing artillery, to tanks. Now we're talking about jet aircraft. The Ukraine contact group is meeting in NATO headquarters. Why should the public believe that NATO is not at war with Russia?"


...Stoltenberg responded as follows (with my bolds):


"Neither NATO nor NATO Allies are party to the conflict. What we do as NATO Allies and NATO, is to provide support to Ukraine. Ukraine is defending itself, we need to understand what this is. This is a war of aggression. President Putin, Russia, has attacked a sovereign independent democratic free nation in Europe, Ukraine. And of course, Ukraine has the right to defend itself. The right of self-defence is enshrined in the UN Charter, it is a part of international law. And of course, we have the right to help Ukraine uphold the right for self-defence. So NATO and NATO Allies are not party to the conflict, but we support Ukraine in the right of self-defence.


Then, of course, the type of support we provide to Ukraine has evolved as the war has evolved. In the beginning, it was extremely important to provide light anti-tank weapons like the javelins. Then we saw the need for artillery and NATO Allies provided more and more advanced artillery systems. Then, it became obvious that it was an urgent need for also more advanced air-defence systems. And NATO Allies are now providing PATRIOTS, SAMP/T, and other advanced air-defence systems, NASAMS. 


And now, over the last weeks and months, Allies have agreed to further step up significantly when it comes to heavy weaponry, armour, infantry fighting vehicles, but also main battle tanks. So yes, the type of support has evolved and that's part of the ongoing consultations among Allies within NATO, within the Ukraine support group and, and it will continue. Because we need to ensure that Ukraine gets the weapons it needs to be able to retake territory, liberate the lands and win this war and prevail as a sovereign independent nation."


Here's the key part of his response:


"The other thing I will say is that the war didn't start in February last year. The war started in 2014. And since 2014, NATO Allies have provided support to Ukraine, with training, with equipment, so the Ukrainian Armed Forces were much stronger in 2022, than they were in 2020, and 2014. And of course, that made a huge difference when President Putin decided to attack Ukraine."


Sometimes world leaders get so carried away with their sense of self-importance that they accidentally say the quiet part out loud.


So, given this admission that, from NATO's perspective, the war in Ukraine started in 2014, is it any wonder that Russia has felt threatened since the West interfered during the Maidan Uprising in late 2013 and early 2014?  Since Stoltenberg seems to conveniently have forgotten NATO history, here is a reminder from Statista of what Russia views as an existential threat to its security, recalling that it views the West through the eyes of a nation that was invaded by nations that are currently or aspiring NATO member states during World War II:



To put this into historical perspective, here is a formerly secret document from March 1991 entitled "Quadripartite Meeting of Political Directors , Bonn 6 March: Security in Central and Eastern Europe" outlining a pledge to Moscow by the Unite States, Germany, France and the United Kingdom that they would not expand NATO eastward to Poland:

Furthermore, at the NATO meeting, 18 European nations also signed a joint letter of intent to "...explore and develop a framework for improved surveillance from space, through multinational cooperation and sharing of national space-based capabilities.


The agreement, which will launch the Allied Persistent Surveillance from Space Initiative (APSS), was signed by the UK, Belgium, Bulgaria, Canada, Finland, France, Greece, Hungary, Italy, Luxembourg, Netherlands, Norway, Poland, Romania, Spain, Turkey, Sweden and United States.


The letter of intent agrees that signatory nations will explore: the potential for sharing data from national surveillance satellites; processing, exploitation, and dissemination of data from within national capabilities; and funding to purchase data from commercial companies.


Russia’s illegal invasion of Ukraine has highlighted the importance of a persistent space surveillance capability, which also forms one of the North Atlantic Council’s agreed strategic outcomes of its Joint Intelligence, Surveillance and Reconnaissance Vision 2030+."


So, there we have another development that Russia could easily view as a threat to its security.


Here is a video of Stoltenberg's doorstep statement in case you wish to watch it for yourself:



World War III has started.  Unfortunately for innocent Ukrainian civilians, they are being used as cannon fodder by NATO in its existentialist battle for relevance in the post-Soviet era and by Washington as part of its plan to retain its exalted position as the world's sole superpower.

Monday, March 27, 2023

Jerome Powell and the Sustainability of America's Debt

In a recent meeting of the Senate Banking Committee, some comments from Federal Reserve Chair Jerome Powell should give us pause to ponder America's fiscal future.  Let's start with his response to a question from Senator Cynthia Lummis and then look at some background data showing the seriousness of the issue.


At the 1 hour and 52 minute mark, we find this exchange:


Lummis (R- Wyoming):  Thank you very much Madam Chairman and welcome Chairman Powell.  When you are setting these rates and making these deacons and seeking that 2 percent magic number (the Fed's inflation target), are you considering the cost of borrowing for the United States knowing that Congress has over-borrowed and that we have over-spent and that the national debt is now at least 97 percent of GDP and that we are going to face challenges of our own making?  This is not about what the Fed has done, this is about what the Congress has done that you have to factor into your decisions.  Do you think about the cost of borrowing for the United States itself?


Powell:  No we do not and we're not going to.  In other words, that would  be fiscal dominance.  If we were, you know, constrained in our monetary policy by the budgetary situation of the United States and we're not, we're clearly not, the path we're on is not sustainable but the level of debt that we have is not sustainable, put it that way.  We don't think about interest costs when we make monetary policy.  We think about maximum employment and price stability.


Lummis: It's your opinion that the level of debt that we have is sustainable?


Powell:  Yes.  Clearly, we have the largest economy in the world.  We can service this debt.  That's not the problem.  The problem is that we are on a path where the debt is growing substantially faster than the economy.  And that's kind of, by definition, in the long-run, unsustainable.  And the way countries have gotten or have fixed that is with longer term programs that have bipartisan support and that address the actual problem in the budget.  That is really the formula.


Actually, to correct Senator Lummis, America's federal debt-to-GDP was 120 percent in Q3 2022 as shown here:



Let's look at some background data.  Here is a graphic showing the United States federal debt which hit $31.419 trillion at the end of the fourth quarter 2022:



According to Debt-to-the Penny, the debt is now $31.458 trillion effective March 22, 2023.


While we are discussing debt and as additional background, here is a graphic showing the total debt of the United States including consumer, corporate and government debt:


Now, let's go back to America's federal government debt.  Here is a graphic showing the mounting interest payments on just the federal debt:


Interest payments on the federal debt have risen from $591.636 billion in Q2 2019 to $852.599 billion in Q4 2022, an increase of $260.963 billion or 44.1 percent.  These are tax dollars that could certainly be used to deliver much needed programs for American taxpayers.  In fact, according to the 2024 Fiscal Year Presidential Budget, the $852 billion would more than cover the budget for Medicare.  It is also important to note that this budget is projected to add another $17.054 trillion to the federal debt over the next decade as shown here:

Now, since politicians are famous for using the debt-to-GDP statistic, stating that thanks to more-or -less endless economic growth, the nominal level of the federal debt is meaningless, let's look at a graphic showing the total federal debt of the United States in blue versus GDP in red:



You will observe that for most of the past 50 years, nominal GDP exceeded the level of federal debt, became more or less equal over the period from the end of 2011 to the middle of 2019 but since then, GDP growth has been exceeded by federal debt growth, a trend that is most definitely not healthy as it will lead to higher and higher debt-to-GDP levels.


If we look at total debt of the United States and compare it to GDP, you'll see that the trend is even more worrisome:


The growth in total debt in the United States is accelerating at a far faster rate than growth in the economy.


If you want to see why the problem worsened, here is your answer:


The prolonged periods of near zero interest rates between 2009 and 2016 and again from 2020 to 2022 led to a massive expansion in personal, corporate and government debt as consumers, corporate leaders and politicians were lulled into a false sense of interest rate reality.


While Jerome Powell may believe that the strength of the United States economy will allow the nation to continue to service growing levels of its multi-sector debt, he does admit that economic growth is not keeping up with the growth in debt, an unsustainable scenario over the long-run.  What he doesn't mention is that it is largely the Federal Reserve's loose monetary policy since the Great Recession that has been responsible for the unfettered growth in debt.


But, then again, when did the braintrust at the Federal Reserve ever see the negative repercussions of their meddling ways and when did politicians ever experience the downside of their overspending ways?

Thursday, March 23, 2023

The Federal Deposit Insurance Corporation - Can It Really Protect American Savers?

With the American banking sector under stresses that have not been seen since 2008 and the response by the Biden Administration to the crisis, it is important to better understand the ability of the Federal Deposit Insurance Corporation (FDIC) to respond to this ongoing crisis.


First, let's look at the total funds on deposit with American commercial banks from Table 2 of the Federal Reserve's H.8 weekly report dated March 17, 2023:



There is currently $17.5947 trillion on deposit at American commercial banks, down from $18.0164 in February 2022.  Note that this amount includes all deposits not just those that are covered by the FDIC.


Now, let's go to the 2022 Annual Report for the Federal Deposit Insurance Corporation.  Here is a graphic showing the estimated Deposit Insurance Fund's (DIF) insured deposits going back to March 31, 2012:



As of September 30, 2022, there were an estimated $9.9 trillion of FDIC insured deposits in approxamtedly 865 million accounts at 4,755 institutions, keeping in mind that the maximum coverage is $250,000 per depositor per FDIC-insured bank, per ownership category.


Here is a graphic showing the deposit insurance fund (DIF) reserve ratios going back to March 31, 2012 with the aforementioned statutory minima reserve ratio being highlighted with a dashed horizon line:



The current DIF reserve ratio of 1.26 percent is well below the legally mandated 1.35 percent minimum.  FDIC's management claimed that "extraordinary growth in insured deposits during the first and second quarters of 2020 caused the DIF reserve ratio to decline below the statutory minimum of 1.35 percent".  As such, the FDIC board of directors adopted a "Restoration Plan" to restore the reserve ratio to at least 1.35 percent within eight years as required by the Federal Deposit Insurance Act.  Notably, the FDIC's board notes that this will only happen if there are no "extraordinary circumstances".  In June 2022, the FDIC projected that the statutory minimum of 1.35 percent would not be reached by September 30, 2029, and, as such, approved an Amended Restoration Plan which increased the initial base deposit insurance assessment rate of 2 basis points.


Here is a table which summarizes the financial situation of the FDIC:



To cover $9.9 trillion worth of protected deposits, the FDIC's insurance fund balance is only $128.218 billion.  This is where the problem lies given that there were already $163.809 in insured deposits at 42 "problem institutions".


The Federal Deposit Insurance Corporation's deposit insurance scheme is clearly not designed to protect depositors from the collapse of either large banking institutions or a multiple of small banking institutions at one time (as is happening now).  In the cases of the Silicon Valley Bank and Signature Bank, depositors were granted coverage for all of their deposits because Treasury Secretary Janet Yellen and two-thirds of the FDIC and Federal Reserve boards agreed that there was a "systemic risk" to the American financial system as quoted here:



...and here:


The only problem is that the implementation of the systemic risk exception creates an imbalance in the banking sector as exemplified in this exchange between Senator Lankford and Janet Yellen at the Senate Committee on Finance Committee Hearing on the President's Fiscal Year 2024 Budget held on March 16, 2023:



Imagine that, the government and the Federal Reserve not being able to see the unintended consequences of their policies.  Given her responses, how on earth did Janet Yellen ever become the head of the Federal Reserve let alone the Secretary of the Treasury?


If you wish to watch the entire exchange, please go to the 1 hour and 50 minute mark of the video of the Committee on Finance Hearing at this link.


The banking sector in the United States (and given the global nature of the banking system) is under stresses that have not been seen since the Great Recession.  The Federal Deposit Insurance Corporation is not capable of ensuring that depositors are covered and, given the nearly $10 trillion in savings in commercial banks, even Washington will not have the funding to protect the savings of millions of Americans should there be a catastrophic failure of one or two of the major players in the banking system.

Tuesday, March 21, 2023

Air Travel in a Carbon-Free Future

I don't know if it's just me but I've been hearing a great number of stories from friends and acquaintances about the misery of air travel since pandemic travel restrictions were modified.  It almost seems as though someone doesn't want the organ donor class to use air travel, isn't it?  While it may just be that my tinfoil hat is a bit tight today, the information in this posting will show just how that possibility could become a reality in the not-too-distant future.

To almost no fanfare, back in 2019, a report commissioned by the United Kingdom government laid out a very clear and thorough plan to completely eliminate greenhouse gas emissions.  To put this report into its proper context, it is important to remember that former UK Prime Minister Theresa May changed the United Kingdom's Climate Change Act to commit to eliminating ALL greenhouse gas emissions in the United Kingdom by 2050.  This excludes the use of carbon offset credits which are currently being used by both individuals and businesses to offset their carbon emissions.  In this posting, we'll look at the overall plan by the authors of the Absolute Zero report, focussing on one key aspect, that of air travel.  When reading this posting, please keep in mind that there is a complete lack of original thinking among elected officials which suggests that the UK's plan could well be adopted in some form or another by other Western governments around the world.


UK FIRES, the organization that created the Absolute Zero strategy states the following about its vision for the future:


"With fewer than thirty years to attain zero emissions, UK FIRES is uncovering the lowest risk path to zero emissions prosperity in the UK by 2050 by:


1.) Optimizing current industrial techniques with new decision making tools

2.) Uncovering gaps in the business space to be filled in by entrepreneurship, finance and policy

3.) Extensive public engagement through innovative communication channels"

UK FIRES states that living with zero emissions by 2050 means electrifying everything and using only electricity that is generated by either renewable sources or nuclear power plants.  It is important to note that the concept of zero emissions is far different from the idea of zero net emissions which is the current mantra of most governments and industries.


Here are the academics behind UK FIRES:


The Absolute Zero report opens with the following:


"We can’t wait for breakthrough technologies to deliver net-zero emissions by 2050. Instead, we can plan to respond to climate change using today’s technologies with incremental change. This will reveal many opportunities for growth but requires a public discussion about future lifestyles.


We have to cut our greenhouse gas emissions to zero by 2050: that’s what climate scientists tell us, it’s what social protesters are asking for and it’s now the law in the UK. But we aren’t on track. For twenty years we’ve been trying to solve the problem with new or breakthrough technologies that supply energy and allow industry to keep growing, so we don’t have to change our lifestyles. But although some exciting new technology options are being developed, it will take a long time to deploy them, and they won’t be operating at scale within thirty years."


The authors claim that to achieve the goal of zero emissions by 2050, all sectors of the economy will have to adapt with some industries (i.e. the fossil fuel industry, marine shipping and air travel and shipping) will become extinct.  Here is a graphic which shows the changes that will be required to achieve the zero emissions goal by 2050 for key sectors of the economy:



Here is another graphic showing how the world will look after 2050:


As promised, let's look at one key aspect of the world today; the current widespread use of air transportation.  As you may have noticed on the two graphic which map the future, the authors clearly state that air travel will become "extinct".  The report notes the following:


1.) Between 2020 and 2029, all United Kingdom airports will close with the exception of Heathrow, Glasgow and Belfast.  Transportation between airports for transferring passengers will be by rail.


2.) Between 2030 and 2049, all three remaining airports in the United Kingdom will close. 


3.) Beyond 2050, the development of electric airplanes will occur with these aircraft using synthetic fuel because the fossil fuel industry will be extinct.


Here is a graphic showing the energy and emissions consequences of a person travelling a kilometre by various means showing the high impact of flying:


Here's a pertinent quote from the report:


"The (mode shift) figure shows both the energy and emissions consequences of a person travelling a kilometre by different modes: these two figures are closely correlated except for flight, where the emissions at high altitude cause additional warming effects. The figure underlines how important it is to stop flying - its’ the most emitting form of transport and we use planes to travel the longest distances. A typical international plane travels at around 900km/hour, so flying in economy class equates to 180kgCO2e per person per hour (double in business class, quadruple in first class, due to the floor area occupied.) Flying for ~30 hours per year is thus equal to a typical UK citizen’s annual emissions."

Please note that flying in business and first classes (i.e. the domain of the global ruling class) are responsible for far greater emissions than the much-beloved "cattle class", the domain of the organ donor class. 


Here's another quote with my bolds:


"The two big challenges we face with an all electric future are flying and shipping. Although there are lots of new ideas about electric planes, they won’t be operating at commercial scales within 30 years, so zero emissions means that for some period, we’ll all stop using aeroplanes...


The two critical forms of equipment that cannot be electrified with known technology are aeroplanes and ships. Although Solar-Impulse 2, a single-seater solar-powered electric aeroplane circumnavigated the Earth in 2016, it is difficult to scale up solar-powered aeroplanes due to the slow rates of improvement in of solar cell output put unit of area. Meanwhile battery-powered flight is inhibited by the high weight of batteries, bio-fuel substitutes for Kerosene face the same competition for land with food  and there are no other ready and appropriate technologies for energy storage. As a result, under the constraint of planning for zero emissions with known technologies, all flying must be phased out by 2050 until new forms of energy storage can be created."


When it comes to travelling and how an individual can reduce their personal carbon footprint, here are the recommendations of the authors:


1.) Stop using aeroplanes


2.) Take the train not the car when possible.


3.) Use all the seats in the car or get a smaller one


4.) Choose an electric car next time, if possible, which will become easier as prices fall and charging infrastructure expands.


5.) Lobby for more trains, no new roads, airport closure and more renewable electricity.


Let's summarize.  By 2030, the authors of the report recommend that only three airports in the United Kingdom remain open with all airports to close by 2049.  While this seems far-fetched on the surface, if we look at how governments negatively impacted air travel during the COVID-19 pandemic, it is clear that, given the generous use of fear porn, people will pretty much fall in line with government diktats no matter how extreme they are.  Governments have granted themselves unfettered powers which will allow them to do as they wish when it comes to putting an end to travel by air all in the name of a zero emissions future.  That said, one thing that we can assure ourselves of is that the ruling class is not about to give up their right to travel the globe by private jet, after all, it's all about "rules for thee but not for me" just like the useless eater class experienced over the past three years.  In other words, enjoy flying while you can.

In a future posting, I'll take a look at some of the other recommendations made in the Absolute Zero strategy handbook.

Monday, March 20, 2023

Global Systemically Important Banks and Credit Suisse - A House of Cards

With the recent turmoil in the American banking sector, the collapse of Credit Suisse and the global interconnectedness of the banking system, the potential impact of the collapse of four banks in the past few days is, to put it mildly, concerning.  This is particularly the case for the death of Credit Suisse, a bank that has been deemed "systemically important" as you will see in this posting.


The world's largest and most influential banks have received a classification as the Global Systemically Important Banks or G-SIBs.  The 2022 list of G-SIBs is the most recent iteration of the listing and is based on data to the end of 2021.  The 30 banks on the list receive their designation from the Basel Committee on Banking Supervision according to methodology that was revised in 2018 to reflect the importance of higher loss absorbency requirements.  Global Systemically Important Banks are institutions that are perceived as not being allowed to fail due several factors, most importantly, the concern that their failure would trigger a wider financial collapse and a threat to the global economy as was experienced in 2008 when the world's banking system nearly collapsed.


Global systemic importance is measured in terms of the impact that a bank’s failure can have on the global financial system and wider economy, rather than the likelihood that a failure could occur.


The methodology that assess the systemic importance of G-SIBs relies on several indicators which can be categorized as follows:


1.) size


2.) cross-jurisdictional activity


3.) interconnectedness


4.) substitutability/financial institution infrastructure


5.) complexity.   


Each of these categories is given an equal weighting of 20 percent and each category has multiple indicators as shown on this table:

The 2018 enhancements included the following:


1.) Amending the definition of cross-jurisdictional indicators consistent with the definition of BIS consolidated statistics;

2.) Introducing a trading volume indicator and modifying the weights in the substitutability category;

3.) Extending the scope of consolidation to insurance subsidiaries;

4.) Revising the disclosure requirements;

5.) Providing further guidance on bucket migration and associated higher loss absorbency (HLA) surcharge when a G-SIB moves to a lower bucket; and

6.) Adopting a transitional schedule for the implementation of these enhancements to the G-SIB framework.

Since G-SIB failures could pose a threat to the international financial system, the banks must hold more risk-based capital to enhance their resilience.  The capital add-on (surcharge) is shown on this table which also shows the "bucket" to which various levels of the capital add-on are assigned with the cut-off score being 130 basis points (bps) with CET1 being Common Equity Tier 1 which is the banks core capital including common shares, stock surpluses, retained earnings and accumulated other comprehensive income :



Here is a list of the G-SIBs and their buckets effective November 2022:


You'll note the presence of Credit Suisse in Bucket 1.


Here is a graphic showing the breakdown of G-SIB scores from data at the end of 2021:



Here is data showing total assets under custody for the largest banks in several nations and how the value of these assets has changed since 2014:


1.) China:



2.) United States:


3.) Canada:



4.) United Kingdom:


5.) Japan:



6.) Switzerland:



It's very apparent that the collapse of even a single G-SIB in any nation could prove catastrophic to that nation's banking system and cause severe stress in the wider global banking ecosystem.

Given the global nature of the world's banking system means that it is only as strong as its weakest link.  While the recent collapse of smaller banks in the United States could prove to be contagious at some point, impacting the nation's G-SIBs, the implosion of Credit Suisse is of greater immediate concern given its importance to the global banking sector.  A house of cards indeed.