Submitted by Michael Every of Rabobank
US President Trump held a rally in a half-empty stadium over the weekend in which, as expected, he pledged to be the face of Law & Order. He’d already tweeted “LAW & ORDER!” previously - to which someone replied “MORK & MINDY!”…which sums everything up. Indeed, the half-empty stadium might reflect flagging Trump voters and an imminent defeat of America First US economic populism. Or, as Democrat AOC tweeted, it might have been teenagers ordering hundreds of tickets each in order to leave seats empty - and by using Chinese-owned apps like Tiktok and Zoom, the latter of which was recently in the headlines for literally shutting down discussion *in the US* that China does not approve of.
Once again what used to be a key signalling device to markets --that said, only after they didn’t listen to it in 2016-- is perhaps distorted by some form of suppression. How to work out if the US will swing one way or the other in November and take economic policy with it? Might we see US-China détente under Biden, or a broader anti-China coalition? Would be see even more generous fiscal policy, or an attempt to try to reduce the deficit? The fact that his campaign is holding no kind of campaign at all, it seems, leaves us all wondering. But if markets are starting to wonder which way to go, think of the poor politicians outside the US.
For now, the US-China Cold War is dangerously real and getting worse: but should one act now to take sides not knowing if Washington will change direction by year end? The Wall Street Journal alleges Russia is getting cold feet siding with a China that seems to want conflict with the West. India’s policy of appeasement of China is over following the opposition calling the Prime Minister not Narendra but Surrender Modi: he has just permitted Indian troops on the Chinese border to use live fire for the first time in decades. Russia says it supports India. New Delhi is also realising it will need to look westwards.
Meanwhile, Europe can’t seem to make up its mind. As protests backing statues coming down take place in Europe too, Germany is putting a new statue of Lenin *up*. At least Europe appears clear on one thing: the ‘frugal friends’ appear to have watered down the Rubicon-crossing fiscal stimulus package, which now holds only token grants. With Germany’s virus ‘R’ number back up to nearly 3 (meaning lockdown should loom?) a warning for a Europe desperately trying to show a normal summer holiday season is possible, and even Stuttgart just seeing a small riot, if the EU keeps austerity up it may see lots more Lenin statues going up too.
Key economic decisions are being made as all this unfolds. The Indian public and some states are boycotting Chinese goods and firms - a huge future market China cannot afford to lose. The EU today holds a virtual summit with China, and the press are already reporting the bloc will “seek to cool tensions” despite Hong Kong, India, Australia’s recent claim that it just suffered a major cyber-attack by a certain state actor, and the EU’s own decision to start the process of closing off parts of its internal market to a certain state. Notably, Europe will miss out if the US-China trade deal continues, as both signatories are currently pretending is the case. Yet the passage of a draconian Hong Kong national security law, perhaps even by month-end, means the risk of US sanctions looms larger - and so do risks of a pre-November US-China decoupling. There are also whispers the US could turn its trade sights on Germany by year-end too. More so if Trump rallies remain empty? “Did we mention our new Lenin statue, Mr Chairman? It’s really very nice.”
With Eurasia, Eastasia, and Oceania strategic shifts in play, and for lots of other reasons, Orwell should be on our minds at present. So should Huxley, who gets a new TV version of Brave New World later this year. Twenty years ago I liked to mutter “Orwell worried about us being watched by Big Brother; he should have worried about us *watching* Big Brother”, which was the first smash-hit UK reality TV show to dominate our attention as the economic seeds we are reaping today were being so generously watered. As ever, someone else had the same thought and better: as Neil Postman writes in ‘Amusing Ourselves to Death:
”What Orwell feared were those who would ban books. What Huxley feared was that there would be no reason to ban a book, for there would be no one who wanted to read one. Orwell feared those who would deprive us of information. Huxley feared those who would give us so much that we would be reduced to passivity and egoism. Orwell feared that the truth would be concealed from us. Huxley feared the truth would be drowned in a sea of irrelevance. Orwell feared we would become a captive culture. Huxley feared we would become a trivial culture, preoccupied with some equivalent of the feelies, the orgy porgy, and the centrifugal bumble-puppy."
Orwell might have feared a Soviet Union where there were no markets. We have a world where we can all watch Barstool Dave Portnoy pick US stocks randomly using Scrabble letters live online - and then watch him outperform hedge funds. “Trivial is essential”. And the essential is now trivial. Bloomberg, which combines Orwell with Huxley and Douglas Adams, sums it up thus: “A ‘Buy Everything’ Rally Beckons in World of Yield Curve Control” That as the Fed’s number two, Clarida, recently stated there are no signs of asset bubbles forming due to Fed policy! The RBA’s Lowe is also open to re-assessing the bank’s
property inflation targeting framework in a few years…when interest rates eventually rise again: in the meantime, “Borrow now!” is the message. The PBOC left its supposed new base 1-year loan prime rate on hold at 3.85% just days after promising USD4.2 trillion new broad credit growth this year, which is just as inconsistent in its own way.
And in the ‘real world’ two-metre rules are one-metre rules – because that works better for pubs. “Air bridges” will soon appear despite reports the virus is mutating such that antibodies for one strain are no use for resisting another. Four-day weeks might be the new five-day weeks in the UK and New Zealand. Indeed, a UK cut in VAT is what is required as government debt to GDP exceeds 100% for the first time since the 1960s….and yet MMT is still not a thing anywhere officially. Naturally, Eurasia has always been at (trade) war with Eastasia.
Enjoy the central-bank bumble-puppy. And nanoo-nanoo.