Xi did not even show up to his own keynote speech, and everyone downplayed Brazil's notion of a BRICS currency ... even Brazil!
First let’s talk about the US economy because financial writers are still misunderstanding where the true fault lines are, even as the pressures keep building for “the big one” — the big financial shakedown. Then we’ll talk about how even Brazil just took the idea it floated of a new BRICS currency completely off the table. You can forget about it. The BRICS just told the world it’s not happening.
Labor will break the economy before the Fed breaks labor
Perhaps more accurately, it might be said that everyone’s obsession with labor as a sign of economic strength will break the economy because it leaves them not paying attention to the critical fault line. In summary: By the time labor starts to crack up in unemployment fractures, the US economy will have already busted wide open at its financial core. It’ll be a case of …
Get the joke at Counterpoint.
In this morning’s headlines, UPS just paved the way for the trend in rising labor costs to ramp upward. UPS workers approved a “massive new labor deal with big raises.” Labor is chewing a chunk out executive management’s butt because UPS will struggle to raise prices to offset labor if USPS and Fedex and Amazon’s own delivery service and the myriad smaller companies do not face similar contract changes in the future. UPS will be constrained in what it can do with prices by stiff competition.
However, it is likely labor costs in other delivery services will be rising over time, and the move to online purchases over brick-and-mortar stores continues to mean high demand for delivery services. In fact, in other news today, the brick-and-mortar bust made another milestone as Macy’s announced it will take its experiment in stripping down the size of its stores to move from major malls to strip malls further as the smaller stores have proven to be much more profitable than the old-world big major anchor stores.
Labor is strengthened by a lack of competition right now, but labor’s unwillingness to slide into greater unemployment is still being seen by the establishment financial news as a sign of “economic resilience,” albeit one that imperils Fed Chair Powell’s fight against inflation. Labor is seen that way even though economic data is sinking.
Powell’s belief that he must bring down jobs to chill the US economy in order to rain down on the fires of inflation pervades. The fact that jobs are not coming down are seen by Powell — and the media that parrots the Fed — as meaning the economy is not slowing to the point where it will completely wipe out inflation. So, interest rates stay high longer and likely even go higher until jobs are crushed down … or, at least, tamped down; but that is a difficult thing to do when the jobs are hard to fill mostly because workers are more scarce.
The scarcity of labor is helping labor get a bigger piece of the corporate profit pie and that will add to inflation wherever there is not enough competition in supply of goods or services to keep a lid on a company’s ability to increase prices, especially where cost increases do not yet affect competitors, such as the UPS contract.
The attempt to see unemployment rise, however, squeezes down on everything, even though unemployment so far is stubbornly (in terms of Powell’s perceived objective) staying near a half-century low and even though labor costs may now be rising faster … if the huge sweep of the UPS contract is any indication:
Oh, it will be much worse than a “downturn.” Those high rates are causing all kinds of financial and economic destruction that is not being seen in the form of rising unemployment, one of the key gauges Powell is watching, or suppressed retail spending (yet). We see that reality playing out in the housing market in today’s headlines where mortgage interest rates have soared to 7.3% now, which has sent mortgage demand down to a 28-year low … as in worse than it was during the housing crisis of the Great Recession.
That is economic destruction since housing drives the US economy; but, even more critical, we see the reality of financial destruction building up at banks, which, as noted yesterday, are being downgraded by credit agencies as the rising interest adds to their costs because they need to raise interest paid to their depositors but, even more, because rising bond yields degrade the value of all the existing bonds banks hold in reserves, taking us back toward the troubles seen in March if people start demanding their deposits back.
Keep in mind, the Great Depression was not caused by a housing bust, which was the epicenter of the Great Recession; it was caused by a banking bust. While today’s banks will be getting pressure from housing, they will be busting over internal financial stresses:
So, economic and financial destruction are working as planned, but job destruction is holding out, as I said would be the case. That, I also warned, would cause Powell to tighten harder into a recession as he keeps trying to drive jobs down, not realizing the resilience in apparent labor strength is not economic strength but actual labor weakness — short supply. It is important to understand these nuances that are about as subtle and nuanced as a barn or a freight train. It is hard to understand how the difference between what labor tightness usually means and what it means today can still be missed, but it continues to be.
Lack of competition always strengthens the hands of those who remain in the game, and that is true for labor, too. The funny thing here is that Yellen used to yowl about how she wanted to see the gains in the economy shared more equitably by labor, but I think we all knew that was party chat and not policy because the Fed would work hard to stop that from happening the second wage gains got serious enough mean anything of value to labor. So long as the Fed could keep the gains to a tidy handful of peanuts to appease the children and elephants at the zoo, wage gains were their goal. Let the gains get significant enough to threaten the steaks eaten by the corporate heads, and the story would become much different.
Let me state again at this point that it won’t be the various forms of economic decline we see in manufacturing or even the loss of trade with China due to its own death of demand that bring the US economy down. It will be the suffocation of the financial sector under rising interest rates. Bank failures due to commercial real-estate defaults and residential mortgage defaults and corporate defaults will bring the economy back to its knees; but the real critical destruction is happening at the very core of banking (as I’ll come to).
Other factors, such as consumers reaching their maximum, as struck the morning news from Macy’s with its information about customer credit cards, will, of course, also weigh down on the economy as will inflation, itself:
Macy’s troubles, however, come not just from the fact that deliquencies are offsetting sales strength (as the sales become meaningless if never paid for), but that they are now also starting to drive down sales because delinquent customers can no longer use their cards and many of those who know they cannot pay their bill would not want to use their credit card for more purchases even if they could:
The big crack in the US economy will be the financial wreckage that comes from the bond market as the US Treasury keeps flooding the market with new government debt, the Fed keeps refusing to roll over old US debt, and the Fed raises interest rates some more, even if only once or twice because the lag time for past interest hikes is still catching up, and the bond market prices up interest faster than the Fed can keep up.
All of that should sound familiar because it is the very path I laid out months back for the cause and effect of our national economic collapse. It is the financial tear-down that is building up behind the system that will be cataclysmic when it breaks through. And it can be self-perpetuating: (In fact, it WILL be.)
The financial destruction among banks should, however, be a boon for Jamie Dimon, whose banking model is based on sucking up dying banks in specially priced sales arranged just for him by the FDIC, the Fed and the Treasury — the triumvirate of banking destruction — where the banking Dimon gets to feast on the wreckage for a mere ten cents on the dollar … just so that we can make sure to keep making the banks that are “too big to fail” vastly bigger. These special arrangements even somehow let him get away with pretending he is nobly taking one for the team by sweeping in to the rescue. It seems to create that ignorant response among some financial writers of “Thank God we have big banks that are strong enough to save us from the crash of these lessor institutions.”
At least, that is how Dimon and his colleagues bill it each time it happens, and they seem to get away with that. The alternative, of course, would be to part the failing banks out only to smaller or mid-sized banks in digestible pieces, rather than making the behemoths even more dangerously bloated and powerful. That never happens!
The BRICS, of course, are on course exactly as laid out
Interesting turns at the BRICS summit in this morning’s news confirm what I have been writing regarding the total lack of effort we would see from the BRICS to create a dollar replacement AND the discord among the BRICS that will always be far more problematic for a BRICS currency than the fractures in Europe are for the euro.
Today’s articles remind us that talk of a BRICS currency, which largely came out of Brazil initially has been taken off the agenda, and participants even emphasized they have no interest in creating such a currency.
Xi did not even bring up the notion of a new global currency, and he did not even attend his own talk! He skipped the event he was supposed to speak at and had an underling read his written key speech which was full of the usual high-minded vagaries anyone can agree with but no actions:
Mostly the speech that Xi did not find important enough to attend attempted to boast about China’s greatness:
However, the need to reassure the small congregation about China’s greatness comes directly out of China’s diminishing economic results, which the whole world is solidly aware of, just as all nations are aware that China has recently done a lot to try to hide is economic results.
China and Russia, of course, are pressing to strengthen the BRICS by enlarging its membership because of the sanctions over the Ukraine war:
The mistake of many on the right in alternative media has been to be too quick to assume any of the rest of the BRICS members share that interest. Other nations are actually leery of expanding the membership and strengthening China’s power. Discord is, in fact, the main reason there will not be a BRICS currency, backed by gold or anything else anytime soon … if ever.
So, this summit will present no new bloc-busting entrance of a dollar-busting global trade currency at all — just an effort to find ways to make trading in their own local currencies more efficient to limit always using the dollar in trade, which mandates holding US bonds for trade. They are not even going to talk about it!
Putin hit the note a little harder, of course, in his televised talk (because he cannot attend due to warrants for his arrest by The Hague).
Even there, NO talk of a new currency at all. Nada word.
So, let’s put a pin in that hot-air balloon and pop it now because even the founding members are saying it is not happening.
The BRICS lack any of the kind of cohesion necessary to form an international currency and many are not as anti-West as some assume because they happen to still value trade with the West, and they fear growing Chinese hegemony as much or more than US hegemony. The agenda of Russia are not the agenda of many other BRICS nations:
Brazil and India have profited immensely from trade with the US and the rest of the West, and they are not prone to damage the very thing that has been their core strength. China, however, has grown large enough that it thinks it can profit by taking over that role, but the others don’t want that. They want solid trade with China AND with the West.
The BRICS are less of a threat to the dollar than the euro ever was. Gradually (as in over a longer more tortuous time than the euro), they may build some cohesion and strength and nibble away the dollar around the edges, but there is no dollar collapse to be found there, and the US will create its own economic collapse long before that happens anyway.
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(Note: I no longer give references with each quote because I have found for years that only one or two people out of thousands of readers for an article are likely to ever chase down a quote anyway. So, to save time, I put the sources quoted or referred to in the editorial in boldface among the headlines below as this makes it easier to organize quotes based on the narrative of the editorial without having to constantly write the reference out in the limited morning time for each editorial, and the few who want to chase it down can still do so by doing a word search in the boldface articles that are there for you to read if you want.)
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