20 May, 2024

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President Joe Biden’s Headaches; Economic, Political & Social

By Kumar David

Prof. Kumar David

The political scene in the United States of America and knock-on effects among allies and in foreign policy have changed considerably in the last six months. Some of this has been brewing for years while others such as the Silicon Valley Bank’s (SVB) overnight collapse have been sudden. A few days after that a group of 11 giant banks got together to raise $30 billion to forestall San Francisco’s First Republic Bank going belly up. Commentators are worried sick that a big bank crunch is possible. Much of what has happened has turned out to be a headache for President Joe Biden. I will discuss them under six headings. 

* Bank and financial drama following the SVB catastrophe and First Republic bailout.

* Economic problems of inflation and employment.

* Climate change, back-tracking on “green” promises and capitulating to energy companies.

* A complicated foreign policy scene: The China game, (fate of the dollar, Ukraine, Israel).

* (Race and social instability in US domestic politics. Not discussed today).

* “To be or not to be”, that is whether tis noble to seek re-election in Nov. 2024 

The immediate cause of the SVC debacle was a gradual increase in interest rates by the Federal Reserve or FED, America’s central bank. First a simple explanation for layman, like you and me. If interest rates increase the value of existing bonds (A) decline. Why? A bond is like a fixed deposit; you buy a bond from the Treasury, a company, or a Bank/Mutual/Investment outfit at a fixed interest rate (coupon rate) for a fixed number of years (e.g. 5, 10, 30). If the outfit raises the interest rate, then new bonds (B) issued from that date onward by the outfit will offer the new, higher, interest rate. Therefore, owning B is better than owning A, and the value of A in the open market will fall. For example, in an extreme case, if the interest rate were doubled, the market price of A will decline to half that of B to earn the same income. [If you hold $100 of A at 3%, you earn $3 a year. If the interest rate  rise to 6%, then those investing in new B bonds will start earning $6 year. So, you will have to flog your (old) A bonds at $50 in the (open) bond market or nobody will buy them]

SVC Bank grew fast as Silicon Valley flourished and money poured in, thanks to the explosion of activities in the tech sector. When the crisis hit, Investors in SVC, that is people who bought SVC bonds as an investment (not to be confused with ordinary bank Depositors), found that their return on investment fell overnight, literally possible in this age of electronic finance. As with all financial crises even though the problem had been brewing for a long time, panic came suddenly. SVC bonds crashed overnight, literally, and the Bank was unable to meet obligation to Investors who turned up at its doorstep (not literally, it happened in the bond market) seeking to sell their Investments. This in turn panicked bank Depositors who turned up (literally) at the bank’s doorstep demanding to withdraw all their deposits. This is what is called a ‘bank run’, this one is the largest in the US since the Great Depression. Unlike 2009 there are other concealed dimensions to the current banking crisis. Panic spread to the European banking sector which at this time of writing is in copy-cat turmoil. Please bear the distinction between Investor and Depositor in mind. 

Enter Joe Biden. He stood in the White House rose garden and guaranteed two things: (a) that deposits of bank Depositors (individuals and companies) would be protected 100%, and (b) the cost of recouping losses to refund Depositors would not be passed on to taxpayers. The money needed (about $9 billion) would be taken out of an insurance fund that all banks are required by law to contribute to as a safeguard for an emergency. It seems Biden shot himself in the foot. The money in the said insurance fund is inadequate to cover the losses especially if panic spreads to other banks as seems likely. That is why the FED, the Treasury and the Federal Deposit Insurance Corporation, the three must have advised Biden, are being blamed. The shit has hit the ceiling; bank and financial turmoil is feared. Investors of course would be allowed to go the wall; “this is how capitalism works” Biden reasonably said.

That was a fairy long harangue on the banking crisis because it’s a new ball-game. Next on my list is inflation and employment. Annual price inflation in the US is about 6%, way above the FED’s target of 2% (there are two things, core inflation and headline inflation; I cannot stop here to discuss the difference). Inflation in the Eurozone is about 8.5%. The FED and the European Central Bank are both caught by the balls! They dare not increase interest rates further for fear of exacerbating the banking crisis, but if they do not, their long-term objectives of fighting inflation gang-aft a-flies.  

The employment scene is a completely new experience. There are a huge number of vacancies in the service sector (shop assistants, bank clerks, telephone answering services, kindergarten and primary school teachers) but no applicants and no takers when offers are made. Unemployment in the midst of a plethora of job offers! How on earth can such a thing happen? The explanation is two-fold; the US has released a huge amount of money into employment support and subsidy schemes and if one earns too much or works too many hours subsidies are truncated. Secondly the modern trend is work-from-home, save on office rental and transport, and if you are the mother of an ankle-biter or toddler stay home and take care of the infant. There is a remarkable change in the pattern of work taking place in societies that can afford it. The flexibility secreted in the bosom of productive powers of advanced locales makes this possible. Advances in the productive power of collective human labour led some chap to mutter:

“Today a man is a hunter, fisherman, herdsman, or critical critic and must remain so or loses his livelihood. In abundance however nobody has to have one exclusive sphere. Society regulates production in general and thus makes it possible for anyone to do one thing today and another tomorrow, to hunt in the morning, fish in the afternoon, rear cattle in the evening, criticise after dinner”

Let’s look at the third item on my list; Joe Biden’s disloyalty to the flamboyant promises he made about climate change, global warming, reducing pollution and greening the planet. Now, he has not betrayed everything but there is disappointment about his approving the $8 billion Alaska Willow Project. The US Bureau of Land Management estimates that it will generate 300 million metric tonnes of carbon dioxide over its 30-year lifetime – the equivalent of adding two million cars to US roads every year. Joe approved three drill sites instead of the five that were proposed – a compromise of sorts with anti-Willow activists. His dilemma is obvious; at best old Joe scores D, a weak pass, on climate change. 

Item 4 is foreign policy and America’s external relations which have deep historical roots and a giant size new dimension, China. Elephant in the room China is no longer willing to be incarcerated in the prison of colonial times; it is asserting its place as a global power side by side with America, but the devil is in the details. Nobody is happy with the inner and outer dashed lines purporting to lay down the outreach of Chinese power. Crunching the toes of Vietnam, the Philippines, Indonesia, Malaysia, Indonesia and Japan is Chinese great power politics at its worst. Xi Jing Pin has become an Asian neo-imperialist.

Let us not pretend that all countries are equal. For about two and a half centuries from say 1750 Britannia ruled the waves and the world. Next it was pax Americana from say 1900; even earlier if you recall the Monroe Doctrine that in 1823 declared that the Americas (North and South) belonged to America’s sphere of influence. You can quite rightly call the Monroe Doctrine America’s nine-dash line. 

Time has moved on and now its China’s turn to muscle in. It has unabashedly asserted that the nine-dash line defines its Monroe-like sphere of influence. Yes, indeed, all countries are not equal and China has asserted that it intends to sit at the great-power table whether America, Europe or Japan like it or not. As with British and US imperialism in the past it is a modern imperialist muscling in on the off-shore welfares of small countries, Vietnam, the Philippines, Malaysia and Indonesia. 

Add Ukraine, Russia, a more assertive India, a Saudi ally who murdered, chopped up a critic of the regime in its Istanbul Embassy and flew the remains back home, an Israeli government determined to subvert the independence of its Supreme Court. The the foreign policy scene facing Joe Biden is gloomy. On other matters such as the AUKUS decision to build three nuclear propelled submarines (with options for two more), this is escalation of great power rivalry. The US is finding that when you are Numero Uno all the world’s problems lie on your platter – “Uneasy lies the head that wears a crown”. I do not intend to say anything about the race issue (Blacks, Hispanics, race theory etc) in the USA today because it’s a big topic that has to be dealt with in a separate essay devoted to itself. The same goes for the future of the dollar, threatened by China’s intention to create an alternative global payment system. 

There is one final point; will Joe will stand for re-election? He has not made up his mind (he will be 82 in November 2024; Trump 78). A geriatric sprint is no fun. If someone trips near the end, will the one whose false teeth flies ahead and cross the finish-line first be declared the winner? If Joe does not enter the race there is no credible Democratic candidate visible. The Republicans are better placed with Ron DeSantis, Nicky Haley, Mike Pence and Ted Cruz all kicking their heels in the starter’s box. Nevertheless, my hunch is that old Joe will choose not to run.

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Latest comments

  • 5
    1

    Young Mr. David (Are You Being Served) is indulging in some ageist jokes here. Physically speaking, he doesn’t appear any better than Trump and Biden. Though I have to admit I’m always enthralled by Prof David’s mind: still alert and sharp and full of youthful enthusiasm for everything that’s going on in the world.

    “Cruel jokes about the old are everywhere. When will we face our ageism epidemic?”
    Francine Prose

    https://www.theguardian.com/commentisfree/2019/nov/10/ok-boomer-jokes-ageism-francine-prose

  • 1
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    Will Mr. Biden seek re-election in 2024? If yes, will he drag the Ukraine crisis until 2024? What is his best bet, war or peace? I think the latter. US politicians are so famous for putting their foot in the mouth and backtracking on what they said.
    US State Secretary Antory Blinken and US National Security Council Spokesperson John Kirby have officially announced that the US is against any peace plan on the Ukraine crisis. They are of the view that it is Ukraine who should decide what they want and the US has nothing to do with Ukraine’s position. Isn’t it a validation of Ron DeSantis’s (now withdrawn) opinion? These officials are utterly confused. First the US and NATO accused China for not using its influence on Russia to stop the (war) in Ukraine. When China finally put forward a position paper on a political solution to the Ukraine crisis, they announced that the US is against any peace plan on Ukraine. Antony Blinken reads from a script. But, John Kirby, I have never seen you at a loss of words and be ambiguous on something so important. What happened?

  • 1
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    On a separate matter, US lawmakers have become a laughing stock around the world a few days ago (especially among kids) on their handling of the TikTok Congressional hearing.
    A US lawmaker: Mr Chew (CEO/TikTok), if you activate airplane mode, can TikTok control the plane?
    Mr. Chew: What?
    Another lawmaker: Mr. Chew, does my kettle have access to my home electricity?
    Mr. Chew: Yes, if you plug it in.
    The lawmaker: Can my kettle now control my TV through the said electricity grid?
    Mr. Chew: What?
    A lawmaker: Mr. Chew, please answer yes or no. HOW MUCH wood a woodchuck can chuck, if a woodchuck could chuck wood? Yes or no?
    Mr. Chew: (Unresponsive).
    This article says it all!
    https://www.wired.com/story/tiktok-hearing-congress-us-privacy-law/

    • 1
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      Wow, some people clearly have a problem in understanding the electricity grid joke mentioned here.

  • 1
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    The US is always looking for a crisis. Now they got it. Russia now plans to deploy tactical nukes in Belarus.
    What made Mr. Putin to decide stationing tactical nukes in Belarus? I see several reasons. Poland’s direct involvement in the Ukraine crisis. From the very beginning, the Polish government has reportedly encouraged its soldiers to retire early and join Ukrainian forces. I believe that NATO troops are in Ukrainian military uniforms. Then, the UK government’s decision to send Uranium based ammunition to Ukraine. Apparently, they have used them in Iraq and Afghanistan “without a problem”. Well, Russia is not Iraq or Afghanistan. As expected, Mr. Putin responded to the UK by deploying tactical nukes in Belarus. Then, there is Crimea, Eastern Ukraine, Kaliningrad and Iran too.
    Some people joked about Russia’s warnings stating that Russia issues warnings repeatedly without action. As I wrote last week, unlike other countries, Russia acts first then issues a warning. Russians are serious people. They talk to the point and make their intentions very clear. They measure their words before bringing up any issue. Even their military operation in Ukraine is slow and steady. Whether we are ready to accept it or not, they won’t withdraw troops from Ukraine.

    • 3
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      Champa,
      Uranium is a very dense, heavy metal. An isotope of Uranium is used to power Nuclear Power Stations and is also used in Nuclear bombs. Depleted Uranium (DU) has very little radiation (much less than natural Uranium) but is very dense and extremely strong. When used in a shell, on the tip, it can penetrate very strong shielding (such as the front of tanks) and can blow up any explosives inside a tank, due to its incendiary properties.
      Putin uses these in his tanks “The Soviet Union and Russia have used DU weaponry since the 3BM-32 Vant, designed for the 125 mm tank cannons.[40] In 2018, TASS reported that Russia was arming some of its T-80 models with 3BM60 Svinets-2 DU rounds.” from Wikipedia if you want to look it up.
      You say “I believe that NATO troops are in Ukrainian military uniforms” to paraphrase the Buddha – show me the evidence.
      In the Middle East I shared a floor in a City Centre High-Rise with Gazprom and talked with many Russians over the course of those years. One of my friends is a descendant of Russian Aristocrats and would normally defend Putin’s actions, but not now.

  • 3
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    Many thanks, Kumar,
    .
    Guys like me have no idea what America is really like, true though it is that my youngest sister, her hubby and the single kid whom they’ve produced is somewhere in North Carolina; I’m not even sure in which town: Durham, Chapel Hill or Raleigh? I believe that the the three towns are close of one another, and form a sort of duplicate Silicon Valley. What a contrast oc’s Ramona is
    .
    However, if not for a few people like you, who take account of how ignorant we are of what these irresponsible cowboys thinking is, we would understand little of why we deserve to starve. Other frogs like the guy in Düsseldorf, Germany want us to “know” that we who reside in Lanka are inferior tadpoles.
    .
    https://www.heraldscotland.com/news/12152751.the-lesson-according-to-tawney-philosophy-of-tadpoles/
    .
    In actual fact, he knows little of German culture; he survives because most Germans today, are decent people. So are most Lankans, although the guy calling himself “leelagemalli” will never acknowledge as much.
    .

    • 3
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      “my youngest sister, her hubby and the single kid whom they’ve produced is somewhere in North Carolina; I’m not even sure in which town: Durham, Chapel Hill or Raleigh?”

      SM,

      Strange that you don’t know where your sister lives. ….. Do they too have the same apprehension that some here in the forum have about your nosey-parker-ing?

      A couple of months ago we drove to West End …… tried to drive through Raleigh but caught the rush-hour and ended up taking diversions. We usually take the Blue Ridge Parkway …… it’s a beautiful drive.

  • 1
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    “The same goes for the future of the dollar, threatened by China’s intention to create an alternative global payment system.”
    Is an alternative global payment system a bad idea at all?
    Is there not something about the US dollar that has made it less trustworthy.
    Have not the indiscriminate string of sanctions invited the US dollar crisis?
    When the dollar is over-weaponized, the weapon could backfire with a vengeance.

  • 2
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    Re: Russia’s decision to deploy tactical nukes in Belarus
    There is a difference between tactical nukes and strategic nukes. In simple terms, tactical nukes are designed to be used in battlefields. Eg: gravity bombs, cruise missiles, ballistic missiles, anti-ship missiles. Strategic nukes such as ICBMs, which are swift and cause greater damage, are designed for wars.
    The US has about 200 tactical nuclear gravity bombs, out of which 100 of them have deployed in Italy, Germany, Turkey, Belgium and the Netherlands. Russia has nearly 2000 of them. (Source: Union of Concerned Scientists).
    Mr. Putin’s decision to station tactical nukes in Belarus once again reminds us that Russia has the world’s largest nuclear arsenal and they will do anything and everything to protect their country. Recently, they forced a US spy aircraft to crash in the Black Sea. We are talking about a country that built the first satellite and the first satellite station in the world. Not only that, the first man in space was a Russian and the first probe on the moon was done by Russia.
    Contd’…….

    • 2
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      WWII first started in Poland. But, they haven’t learnt a lesson. All of the NATO countries rely on the USA. None of them can stand alone against Russia. As I said a few months ago, a minor incident may trigger a major war for which even the US is not prepared. (Who knows, they may even leave Syria to avoid a major conflict.) Interestingly, only Russia and China are ready for a major war. As apparent, if WWIII happens, it won’t be one war. There will be three wars; a pacific war, a middle eastern war and an arctic war. I can’t stop wars. But, Russia and China should not initiate an arctic war. I see how important it is to keep open a communication channel, if the need arises.
      Having said that, I believe that Russia’s decision to deploy tactical nukes in Belarus is more or less aiming at destroying the much-hyped Western tanks and ammunition before they reach the battlefront in Ukraine. As reported by the media, most of them will arrive from Poland. I don’t know for sure. But, if Russia wants to use tactical nukes in the battlefield, they don’t have to station them in Belarus, do they?
      Contd’……

      • 1
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        Crimea, where the majority population is Russian, is not overly important to Ukraine. Crimea’s close proximity to Russia and its strategic location which provides a quick access to the Eastern Mediterranean Region are the reasons for the West to persuade Ukraine to join NATO. Without Crimea, Ukraine doesn’t hold any value to the US.
        Russia’s strategy is obvious. They will never leave Crimea or even Eastern Ukraine because Russia will not let any country undermine its power in the Black Sea. Moreover, keeping Crimea under Russia safeguards its Dear Friend, China’s economic interests in the Eastern Mediterranean region, too. This highlights the importance of China’s role as a mediator for peace between Russia and Ukraine. I wish I could help Ukraine. But, Ukraine is in the middle of a great power pentagon: the US, Britain, Europe vs. Russia and China. Foreign policies of Western countries are based on hypocrisy, double standards, deception and racism. They appear as God Fathers to proxy countries, create crises and maintain them for their own benefit and then abandon those countries when they don’t serve their purpose or after finding another proxy country, whatever comes first.
        Contd’……

        • 1
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          Ukraine has no option other than stick with the US led NATO unless China offers to rebuild Western Ukraine in exchange for peace with Russia.
          I stand by what I said after President Biden’s visit to Kiev. The US is done with Ukraine. That is why they are against any peace plans between Russia and Ukraine. They will even use it as a tool to abandon Ukraine.
          My “unsolicited advice” to Ukraine is, reach out to China. Because, it is highly unlikely the US, Britain or Europe help rebuild Ukraine. They are destroyers, not builders. Besides, China is more reliable than the US.
          Without much fanfare, Mr. Putin has rebuilt 60% of Mariupol already. Over 300,000 people now live in peace in Mariupol. As promised in February 2022, Mr. Putin will restore peace in Donbass and rebuild it too. In fact, the entire Eastern Ukraine needs new infrastructure facilities. Sometimes, it is hard to accept the obvious. I know my opinion doesn’t matter. But, I decided to share it anyway.

      • 2
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        Champa,
        You along with many Sri Lankans have no idea of the devastation caused by Putin’s invasion of Ukraine. Sri Lanka TV does not show the World War II-like scenes of devastated towns and cities in Ukraine or the war crimes committed every day by the Russians shelling civilian accommodation, Hospitals, Schools and Electricity Sub-stations etc.. And as for their “slow and steady military operation” you have obviously forgotten that Putin and his Generals thought it would all be over in 3 days and Zelensky would be dead. They forced the Russians back from Kiev and re-captured Lviv and Kherson and are currently holding both Wagner and the official Russian troops back in Bakhmut.
        I always wanted to meet a Russian Troll, but I never thought it would be in Sri Lanka!

        You missed a little bit of information about the invasion of Poland. It wasn’t only Germany but also the Soviet Union that invaded Poland. Strange how selective people’s memories can be.
        Best Regards

        • 2
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          Discerning readers had always known that Champa is not a real person. In this latest Avatar it is a Putin bot.

    • 2
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      Champa,
      On Nuclear weapons – have you forgotten that Ukraine gave up its nuclear arsenal and sent them to the Russian Federation. This was the Budapest Memorandum. It included the following “The memoranda, signed in Patria Hall at the Budapest Convention Center with US Ambassador Donald M. Blinken amongst others in attendance,[3] prohibited the Russian Federation, the United Kingdom and the United States from threatening or using military force or economic coercion against Ukraine, Belarus, and Kazakhstan, “except in self-defence or otherwise in accordance with the Charter of the United Nations.” As a result of other agreements and the memorandum, between 1993 and 1996, Belarus, Kazakhstan and Ukraine gave up their nuclear weapons.
      Can you see the words “in accordance with the Charter of the United Nations” – maybe you could include this with your message to Putin about the poor child estranged from her father due to an anti war picture.
      Best Regards

  • 2
    2

    On a separate matter (which I came to know only a few days ago), I earnestly urge Mr. Putin to release Alexei Moskalev, the father of the sixth grade child Masha who drew an “anti-war” image at her art class. Alexei is a single parent and a bird feeder, obviously who lives with nature at heart. How do you expect a nature lover’s daughter to draw an image in support of war?
    Mr. Putin, Sir, do you even know about this? First of all, the school is wrong to ask minors to draw art in support of war. I don’t think even students in higher grades understand the geopolitics that prompted Russia to launch a special military operation in Ukraine and the threat posed by NATO’s unjustifiable expansion towards Eastern Europe. Schools should be banned from asking children to draw art in support of war. Schools should promote peace, not war.
    On the other hand, Masha’s father didn’t draw the image. Separating a child from her only parent is totally unacceptable. (I understand that they are now under house-arrest.)
    Contd’……

    • 2
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      I saw the said image drawn by Masha. It is not an anti-war image to discredit the Russian military. The image depicts the perspective of a peace-loving child from the point of view of Ukraine and I don’t think it is a crime. Even posting “Glory to Ukraine” on social media shouldn’t be regarded as a crime.
      Unlike Ukraine, Russia is not under Marshal Law or hasn’t banned anyone leaving the country. Russians enjoy more freedom than Ukrainians. The Russian military doesn’t kidnap students or disabled seniors at gunpoint and send them to the battlefront.
      How many Russians are aware that the special military operation was a pre-emptive measure to defend Russia after failing all other efforts to reach a diplomatic solution with the US+NATO?
      Russians are peace-loving, compassionate people. Mr. Putin should try to win the hearts of those who are against Russia’s military activities, instead of isolating and punishing them.
      I strongly recommend Mr. Putin gives a special audience to Masha and her father and tells them that how much he himself wishes there is peace between Russia and Ukraine and that how much he concerns about the safety and security of ethnic Russians in Eastern Ukraine who also deserve to live in peace. Thank you.

      • 0
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        Oh, Alexei Moskalev is a bird breeder. I assumed him to be an ethical pet bird breeder. He has been deprived of his parental rights now. The incident happened last year when his daughter was in the fifth grade. It’s a long story. Masha is now in a shelter apparently. Her education is disrupted. So unfair. The child lives in fear.
        I sincerely urge Mr. Putin to look into this matter. Mr. Putin Sir, when Mariupol Azov Staal Plant was under siege, you ordered your military not to storm the Plant to save the lives of Azov nazis who were trapped inside. You have released thousands of Ukrainian soldiers from prison. You sent free grains to Africa. You have also evacuated orphaned children from conflict areas in Ukraine and taken them to safety, something actually should have been done by the Ukrainian government. I remember when there was a dirty bomb threat in Kherson, you ordered your military to first evacuate civilians, amidst strong objections from the Ukrainian government. You have given orders to evacuate and protect civilians in many instances where the Ukrainian government failed to do so. Please show the same compassion to Masha and her father.

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