Hard Landing Eagle One
Fertiliser disruptions, Fiji election failures, US pandemic panic, yield curve indicates recession, Biden is a reactionary, US debt soars, and US military budget skyrockets
UPDATE: The Long Mekong Daily starts with phosphorus fertiliser shortages before heading to Fiji, which is in the middle of a an election crisis and Pacific Island repositioning away from the US. The US faces renewed pandemic fears from the spread of three viruses and hospitals are already overwhelmed and the population under-vaccinated. The yield curve inversion is a sure sign the US is recessionary, but military budgets keep growing as the national debt balloons to over 130% of GDP. And, US public intellectuals argue that the Biden administration is increasingly reactionary and creating ad-hoc strategies with no defined outcomes to counter China and Russia. The Long Mekong Daily predicts the US is in for a hard landing and that means stormy weather globally.
Phosphorus supply is increasingly disrupted - we are sleepwalking into a global food crisis
Without phosphorus food cannot be produced, since all plants and animals need it to grow. Put simply: if there is no phosphorus, there is no life. As such, phosphorus-based fertilisers – it is the “P” in “NPK” fertiliser – have become critical to the global food system.
Most phosphorus comes from non-renewable phosphate rock and it cannot be synthesised artificially. All farmers therefore need access to it, but 85% of the world’s remaining high-grade phosphate rock is concentrated in just five countries (some of which are “geopolitically complex”): Morocco, China, Egypt, Algeria and South Africa.
Seventy per cent is found in Morocco alone. This makes the global food system extremely vulnerable to disruptions in the phosphorus supply that can lead to sudden price spikes. For example, in 2008 the price of phosphate fertilisers rocketed 800%.
At the same time, phosphorus use in food production is extremely inefficient, from mine to farm to fork. It runs off agricultural land into rivers and lakes, polluting water which in turn can kill fish and plants, and make water too toxic to drink.
In the UK alone, less than half of the 174,000 tonnes of imported phosphate are actually used productively to grow food, with similar phosphorus efficiencies measured throughout the EU. Consequently, the planetary boundaries (the Earth’s “safe space”) for the amount of phosphorus flow into water systems have long been transgressed.
Unless we fundamentally transform the way we use phosphorus, any supply disruption will cause a global food crisis since most countries are largely dependent on imported fertilisers. Using phosphorus in a smarter way, including using more recycled phosphorus, would also help already stressed rivers and lakes.
We are currently experiencing the third major phosphate fertiliser price spike in 50 years, thanks to the COVID-19 pandemic, China (the biggest exporter) imposing export tariffs, and Russia (one of top five producers) banning exports and then invading Ukraine. Since the start of the pandemic, fertiliser prices have risen steeply and at one point had quadrupled within two years. They are still at their highest levels since 2008.
Read the full article here.
Fiji Elections end in no majority - tensions ahead
Fiji’s prime minister, Frank Bainimarama, has lost his parliamentary majority with the election’s final ballot count being returned.The former opposition Social Democratic Liberal Party (Sodelpa) is in negotiations with the FijiFirst government and People’s Alliance over which it will support with its balance of power.
Bainimarama’s Fiji First party is the largest single party with 42.5% of the vote while People’s Alliance and the National Federation Party – which have already said they would join forces – sit at 36% and 9%respectively. Sodelpa holds just over 5% of the vote. The other five political parties failed to clear the 5% threshold needed to get a member elected to the expanded 55-member parliament.
Sodelpa’s general secretary, Lenaitasi Duru, said on Sunday it would enter the second round of negotiations with both parties. Duru said their priority Indigenous and education policies were among those non-negotiable.
The party campaigned on free tertiary education and allocating $159m a year for Indigenous affairs, a more than tenfold increase in the government’s budget allocation for the ministry this financial year. The general secretary said it was not hypocritical for the party to be negotiating with the government after running on a “time for change” platform. “It’s not hypocritical if you bring about that change,” he said.
Duru said the party was sitting in the middle and waiting on the respective offers to decide what’s best for the nation. But he was quoted in local media firing back at People’s Alliance deputy Lynda Tabuya for calling Sodelpa a “haunted house” after she jumped ship following the leadership spill. “When she left she took the horror with her. We are no longer haunted, we are ready to form the next government,” Duru was quoted as saying by the Fijian Broadcasting Corporation on Sunday. “Some people went out their way to damage, destroy and destruct the party but we are still standing.”
Should Sodelpa side with People’s Alliance, it would mark the end of Bainimarama’s nearly 16 years in power after taking control via a coup in 2006 and becoming prime minister the following year. The People’s Alliance leader, Sitiveni Rabuka, himself a former coup leader turned prime minister, previously led Sodelpa to the 2018 election.
He carved Bainimarama’s majority down to 50.02 per cent and drew an almost 12% swing towards the party in the process. Rabuka was then ousted by current leader Viliame Gavoka, leading to him establishing the People’s Alliance which drew nine additional members across.
Rabuka and three other opposition parties have been vocally alleging problems with the voting system and said they had lost faith in the Fijian Elections Office after falling behind. The Multinational Observer Group said it has not observed “any significant irregularities or issues during pre-polling, postal voting or election day voting”.
Read full article here.
Pandemic Panic in US hospitals
Nearly 30,000 people currently in the hospital have tested positive for Covid-19, up 30 percent since Thanksgiving.
For more than two years, shuttered schools and offices, social distancing and masks granted Americans a reprieve from flu and most other respiratory infections. This winter is likely to be different.
With few to no restrictions in place and travel and socializing back in full swing, an expected winter rise in Covid cases appears poised to collide with a resurgent influenza season, causing a “twindemic” — or even a “tripledemic,” with a third pathogen, respiratory syncytial virus, or R.S.V., in the mix.
Cases of flu have begun to tick up earlier than usual, and are expected to soar over the coming weeks. Children infected with R.S.V. (which has similar symptoms to flu and Covid), rhinoviruses and enteroviruses are already strainingpediatric hospitals in several states.
“We’re seeing everything come back with a vengeance,” said Dr. Alpana Waghmare, an infectious diseases expert at Fred Hutchinson Cancer Center and a physician at Seattle Children’s Hospital.
Most cases of Covid, flu and R.S.V. are likely to be mild, but together they may sicken millions of Americans and swamp hospitals, public health experts warned.
“You’ve got this waning Covid immunity, coinciding with the impact of the flu coming along here, and R.S.V.,” said Andrew Read, an evolutionary microbiologist at Penn State University. “We’re in uncharted territory here.”
The vaccines for Covid and flu, while they may not prevent infection, still offer the best protection against severe illness and death, experts said. They urged everyone, and especially those at high risk, to get their shots as soon as possible.
Older adults, immunocompromised people and pregnant women are most at risk, and young children are highly susceptible to influenza and R.S.V. Many infected children are becoming severely ill because they have little immunity, either because it has waned or because they were not exposed to these viruses before the pandemic.
See a full report here.
Visualizing (and Understanding) an Inverted Yield Curve
For a few months in 2019, the yield curve inverted and warned of a potential recession.
Towards the end of 2021, it happened again. And throughout 2022, the inverted yield curve has looked more and more extreme. So what does an inverted yield curve look like, and what does it signal about an economy?
The above visualization from James Eagle shows the yield curve from November 2021-2022 using eurodollar futures yields—which serve as an indicator for the direction of the yield curve.
What Denotes an Inverted Yield Curve?
Generally speaking, the yield curve is a line chart that plots interest rates for bonds that have equal credit quality, but different maturity dates.
In normal economic conditions, investors are rewarded with higher interest rates for holding bonds over longer time periods, resulting in an upward sloping yield curve. This is because these longer returns factor in the risk of inflation or default over time.
So when interest rates on long-term bonds fall lower than those of short-term bonds, it results in an inverted yield curve.
The worrying trend is that an inverted yield curve in key government securities such as U.S. Treasuries can often foreshadow a recession. For every recession since 1960, an inverted yield curve took place roughly a year before, with just one exception in the mid-1960s.
This is because the yield curve has steep implications for financial markets. If the market predicts economic turbulence, and that interest rates will fall in the long term, investors flock to buy longer-dated bonds.
See the full visualisation here.
The China Trap is a US Own Goal
Competition with China has begun to consume U.S. foreign policy. Seized with the challenge of a near-peer rival whose interests and values diverge sharply from those of the United States, U.S. politicians and policymakers are becoming so focused on countering China that they risk losing sight of the affirmative interests and values that should underpin U.S. strategy. The current course will not just bring indefinite deterioration of the U.S.-Chinese relationship and a growing danger of catastrophic conflict; it also threatens to undermine the sustainability of American leadership in the world…
Jessica Chen Weiss argues that Biden Administration policy is contributing to an “action-reaction spiral.”
A political scientist and professor of government at Cornell, Weiss had previously studied how China had risen in prominence as a campaign topic in the 2010 midterm elections, especially in terms of blue-collar jobs leaving the U.S. But she felt that this new wave of concern about China was of a different quality: it had become an obsession that could warp U.S. society.
“We can’t agree on what we stand for; that’s part of the problem,” she said. “We are risking our vibrancy as a democracy and our ability to attract talent.”
That was the beginning of Weiss’s new role as a public intellectual. She wrote for the mass media and spoke out in public. She was due a sabbatical year and sought out a fellowship that would allow her to spend it as a senior adviser on the policy-planning staff at the U.S. Department of State in the Biden Administration, helping to shape U.S. policy toward China.
She is quick to say that the twelve months were a terrific learning experience, and that the Administration was open to her ideas. “The words are there, and the instinct is there,” she said. “But there is the outcompete-and-beat-China muscle and the what-do-we-stand-for muscle. I think that second muscle is weaker in this Administration.”
In August, the forty-one-year-old published her concerns in a Foreign Affairsarticle that catapulted her to the front ranks of the growing number of China experts concerned that U.S. foreign policy suffers from an unhealthy focus on China as a threat. Called “The China Trap,” her piece details her worries that every interaction with China is now seen as a zero-sum game. Part of this is driven by China’s own actions, for example, in militarizing the South China Sea, threatening the democratic island of Taiwan, and failing to open its economy. “But a complete account,” she wrote, “must also acknowledge corresponding changes in U.S. politics and policy.”
That includes a barrage of punitive measures that grows by the year, including tariffs, sanctions on Chinese officials, and restrictions on cultural exchanges. Some of those policies began in the Trump Administration, but few have been changed under the Biden Administration, which has added new restrictions.
Most worrying to Weiss, President Biden also appears to be drifting away from a decades-long policy of “strategic ambiguity” toward Taiwan, which many in both parties now see as deserving almost unreserved U.S. support. On four occasions, Biden has spoken of the U.S. responsibility to defend it, contradicting official U.S. policy of “strategy ambiguity” since relations were normalized with China in 1979. Each statement was walked back by the White House, which has said that U.S. policy has not changed, but the repetition has made it hard to believe that Biden is simply misspeaking. “I think we are in an action-reaction spiral,” Weiss told me, with each side feeling the need for ever-tougher measures to signal its seriousness. “We’re heading toward a crisis and a catastrophe that will devastate the global economy.”
Read the full article here.
America's $28T Debt Explained in one Chart
In response to the pandemic, the U.S. Government initially sent $2T of stimulusinto the economy. Nearly a year later, they’re readying another set of relief money. Everything from direct payments to workers, guaranteed loans to small businesses, and unemployment benefits are on the table. All the activity from the first bill has been adding to the national debt, which as our latest visual illustrates, has been exploding for years. And this next bill could accelerate the move. You can check out the U.S. debt clock in real-time here.
For the first 50 years in our visual from 1929 until 1979, the U.S. national debt only grew gradually. It was just $16B in 1929 or about 16% of GDP, rising to $827B or 31% of GDP in 1979.
Debt levels started to explode during the 1980s and 1990s, rising from $908B when Volcker raised the Fed rate to 20% to tame inflation to $5.6T when the Glass-Steagall Act was repealed in 1999.
In the late 1990s, the growth of the national debt slowed down. The U.S. government actually ran a surplus in 2000, and the debt decreased as a percentage of GDP from 65% in 1995 to 55% in 2001.
The U.S. debt resumed its skyrocketing trajectory with the War on Terror, the Great Recession, and now the Coronavirus crisis. It already hit 127% of GDP in Q3 of 2020 and is projected to double to 202% by 2051.
We gathered figures for the national debt and a list of relevant events from The Balance and the U.S. Treasury, which adjusted debt figures for inflation. We added a color-coded schema making it easier to tell every time the country adds another $6T to the debt. Another way to think about national debt is to compare it to the size of the economy. A country with a small economy can’t afford to rack up as much debt as a large one.
See the full visualisation here.
US Military Spending Surges - But at what cost?
The combination of the war in Ukraine and concern about perceived threats from Russia and China is driving a bipartisan push to increase U.S. capacity to produce weapons.
Perceived military threats from both China and Russia are driving bipartisan support for a surge in Pentagon spending, setting up another potential boom for weapons makers that is likely to extend beyond the war in Ukraine.
Congress is on track in the coming week to give final approval to a national military budget for the current fiscal year that is expected to reach approximately $858 billion — or $45 billion above what President Biden had requested.
If approved at this level, the Pentagon budget will have grown at 4.3 percent per year over the last two years — even after inflation — compared with an average of less than 1 percent a year in real dollars between 2015 and 2021, according to an analysis by Center for Strategic and Budgetary Assessments for The New York Times.
Spending on procurement would rise sharply next year, including a 55 percent jump in Army funding to buy new missiles and a 47 percent jump for the Navy’s weapons purchases.
Two journal articles on the [mainly negative] economic costs of massive military spending here and here.