Submitted by Michael Every of Rabobank
To my fevered mind, the title of today’s Daily --“De/Escalation”-- could have been a fantastically-bad Hollywood B-movie ‘Face/Off’ clone: Nicholas Cage escalates a tricky situation with a ticking time-bomb somewhere in a beautiful mountain setting, while John Travolta has to de-escalate by defusing the bomb before it blows. I can even see the poster with a snowy mountain dividing their faces looking left and right with the log-line: “He’s Escalating on Thin Ice”.
Given we DO apparently live in a bad Hollywood B-movie, it’s perhaps not a surprise we have seen so much de/escalation in the last 24 hours.
De-escalation: After the brief trade war U-turn U-turn yesterday, India and China are reportedly withdrawing military forces from the border where they clashed last week. (Though Indian government critics suggest China is not conceding the territorial advantage it has seized, meaning it wins from the situation; India is rushing to order new Russian weapons; and the India-China political dynamic has changed irrevocably.) North Korea has also decided it isn’t going to proceed with military action against the South. Suddenly it’s all sunshine in geopolitics.
Escalation: Apart from the drone and missile attack on Riyadh yesterday, and Egypt threatening to moving militarily against Turkey in Libya. Also, we saw two separate articles in the South China Morning Post yesterday warning about US-China war, one based on Thucydides and the real politik recognition the US is never going to allow China to supersede it as primus inter pares; the second quoting Chinese research that President Trump has just a 30% chance of winning the election and can only win via: (1) the US-China trade deal working; or (2) a short, sharp war with China in the South China Sea. The fact that this was published in stability-obsessed China is itself telling. Given the view the US-China trade deal is going to fail anyway, it’s also quite worrying if you believe it. What’s it they say: ”Your worries don’t amount to a hill of beans”? Maybe they do.
De-escalation: In the US Dr. Fauci says that a virus vaccine is probably on the way soon.
Escalation: ….which is good news given he also reports a “disturbing surge” in US virus infection numbers as cases continue to soar in places like California, Texas, Florida, and Arizona, and are even creeping up again in New Jersey. Short term risks are that when the EU re-opens its borders in July, US citizens will now be excluded. Quite the movie plot-twist in that development given how that travel dynamic played out earlier in the year. Meanwhile, the world virus situation continues to rapidly deteriorate, and reports are health-care professionals are looking ahead to the looming ‘flu season, now just a few months away, and fear a deadly confluence of Covid and influenza.
De-escalation: US Treasury Secretary Mnuchin states the States will be out of recession by year end: which is possible but depends on the virus outlook. Another fiscal stimulus package is also being considered: which helpfully shows war with China is NOT the only possible path to election victory. (Although Mnuchin underlined he is expecting China to adhere to the trade deal.)
Escalation: Nouriel “Dr Doom” Roubini and former World Bank head Joseph Stiglitz underline (as Bloomberg puts it) that: “the global economy faces a bleak future in which capitalism could take a beating unless governments get their policy responses just right.” It *is* taking a beating already. Imagine what the capitalist economy would look like without the socialism of government support right now – which starts to run out in months. The problem is most of the socialism is for the rich in too many places. As you may have noticed, there are already more than a few critics of the system making their voices heard. What happens when current support measures are withdrawn? What happens if they aren’t? Both the well-known economists add that globalisation has “taken another hit”, that the future recovery will be even worse than the one Main Street (not Wall Street) endured post-2008, and that stagflation is now a significant risk too. It’s also not just a Western problem: even the China Beige Book says Chinese GDP shrank again in Q2 and hence the country is in technical recession (though of course we should not necessarily expect official data to reflect that). How does China respond to its parallel to ‘re-election risk’?
You think this “De/escalation” movie stinks? You are right, it does. Proudly! But look out the window and consider I could easily have gone with “Sharknado”.