David Fuller and Eoin Treacy's Comment of the Day
Category - General

    Trump Got Syria and China Right Last Week. That is a Start

    The Trump administration’s foreign policy has been a dizzying spectacle of mixed messages and policy reversals during its first three months. But in last week’s crucial tests, President Trump made good decisions about Syria, Russia and China — moving his erratic administration a bit closer toward the pillars of traditional U.S. policy.

    The decision to strike a Syrian air base was a confidence builder for an inexperienced and sometimes fractious White House, a senior official said. Trump couldn’t be sure when he launched the attack that a Russian wouldn’t be killed, or that some other freak mishap wouldn’t arise. The military option he chose had two virtues: It was quick, surprising Russians who hadn’t expected such prompt retaliation; and it was measured, sending a calibrated message rather than beginning an open-ended military intervention.

    Trump famously likes to win, and he can probably claim a win here after weeks of chaotic setbacks. As a result, the Syria operation, generally praised at home and abroad, has consolidated the power of Trump’s core foreign policy team, in ways that may alter the political balance of this White House.

    Here’s the consensus among top Republican and Democratic former officials I spoke with: National security adviser H.R. McMaster ran a tight interagency process; Defense Secretary Jim Mattis offered the president clear, manageable options. Trump mostly stayed off Twitter, encouraging his team members to do the work rather than disrupting them.

    Perhaps the most visible beneficiary is Secretary of State Rex Tillerson, who has found his voice after an agonizingly slow start. Tillerson clearly has gained Trump’s confidence and has also forged an alliance with the decisive backstage operator in this White House, senior adviser (and Trump’s son-in-law) Jared Kushner.

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    A Soaring Trump Dollar Would Risk Global Trade War and China Currency Crisis, Warns Posen

    The world's leading currency institute is bracing for a dramatic rise in the US dollar as the Federal Reserve rushes to tighten monetary policy, setting the stage for a protectionist showdown and a fresh debt crisis in emerging markets.

    Adam Posen, president of the Peterson Institute for International Economics, said investors have badly misjudged the confluence of forces at work in Washington.

    They wrongly assume that fiscal stimulus will come to little under Donald Trump, and are equally wrong that Janet Yellen Fed's will remain dovish as the US nears full employment.

    "The Fed is going to be far more aggressive than people think. Our view is that there will be three to four more rate rises this year," he told The Telegraph.

    This would amount to a global monetary shock, all the more so since the Fed is also floating plans to reverse quantitative easing (QE) by halting the roll-over bonds as they mature. This move to shrink the Fed's $4.5 trillion balance sheet may come earlier than originally supposed, perhaps by the end of the year.

    The effect of Fed tightening would be to drain dollar liquidity from the international financial system, the exact opposite of what happened in the emerging market boom earlier this decade when so much of the Fed's easy money leaked into East Asia, Latin America, Africa, and the Middle East.

    "We expect the dollar to rise by another 10pc to 15pc. The concern is that this will suck capital out of the more fragile emerging markets and lead to fresh capital outflows from China," Mr Posen said.

    "It may vary country by country but it could be like the 'taper tantrum'. Malaysia and Brazil look vulnerable to us," he said, speaking at the Ambrosetti forum of global economists on Lake Como.

    A hawkish Fed could prove painful for investors still hoping that central banks will come to the rescue whenever there is trouble, be it the 'Yellen Put' in the US,  the 'Draghi Put' in Europe, or the 'PBOC Put' in China.

    The Fed is itching to show that it is not a prisoner of Wall Street, after being forced to retreat many times in recent years. It effectively delayed rate rises last year due to China’s currency scare. Now the coast looks clear.

    "Central bankers don't think policy should be constrained just because somebody in the markets is going to lose money," Mr Posen said.

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    Email of the day

    On Brexit sentiment::

    Dear David This article in the Sunday Telegraph summarises a poll of views of the UK population 9 months after the Brexit vote. Although one has to be a little sceptical about polls in general, the results do make a lot of sense. The title says it all: "Big decision has been made so just get on with it." http://www.telegraph.co.uk/news/2017/04/08/big-decision-has-made-just-get-writes-lord-ashcroft/

     Apparently the 'remain' camp is now a lot less than 48%! Top priority recorded was to stop paying anything at all into the EU budget and to be rid of the European Court of Justice. Those came higher than control of immigration. That shows what really drove the vote last summer. Best wishes 

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    Squaring Up Leaves Putin No Way to Save Face

    Here is the opening of this psychologically perceptive article by Clare Foges for The Times, and a PDF version is also in the Subscriber’s Area:

    A superbly sinister Reagan campaign ad from 1984 shows a bear stalking through undergrowth. Over the drum of a heartbeat a gravelly voice warns: “There is a bear in the woods. For some people the bear is easy to see. Others don’t see it at all. Some people say the bear is tame. Others say it’s vicious and dangerous. Since no one can really be sure who’s right, isn’t it smart to be as strong as the bear?”

    In recent days the West has decided to approach the bear and flex its muscles. Over the weekend the foreign secretary Boris Johnson pulled out of a long-planned meeting with the Russian foreign minister Sergei Lavrov and called for more punitive economic sanctions. Sir Michael Fallon, the defence secretary, made the statement that Russia was “by proxy... responsible for every civilian death last week”. Yesterday the foreign ministers of the G7 met to agree a demand that President Putin withdraw military support from Assad. Tomorrow Rex Tillerson, the US secretary of state, goes to Moscow to deliver a “clear and co-ordinated message” that the Kremlin must toe the line.

    The new approach is to square up to the bear: challenge Russia explicitly; demand a climbdown. Given that Moscow has failed to oversee the elimination of President Assad’s chemical weapons this is, of course, perfectly reasonable. Whether it will be successful is another thing. I fear this approach won’t work, because it does not pay due care to the critical thing: the psychology of the man who is Russia.

    To talk of psychology in the field of international relations may seem lightweight to some. Experts in foreign affairs prefer the hard-edged lexicon of strategic interests to the fluffy language of feelings. But thinking on geopolitics too often forgets the human beings at its heart: their fears, insecurities and vanities. In a country where there are checks on power, the psychology of the leader matters less. Their emotional edges will be blunted by layers of process. In a system like the Kremlin, however, where the leadership is absolute, the mindset of the man matters profoundly. It should be factored more carefully into the western approach.

    Humiliation, pride and status anxiety are central themes of the Putin story. A telling detail: as a teenager he was disturbed to see his peers developing faster, growing taller — so he took up judo to keep his “place in the pack”. Anything to avoid the humiliation of being slight, small, pushed around. Give me the boy and I’ll show you the man: the one who joins deep dives into Lake Baikal, discovers “ancient Greek urns” in the Black Sea, shoots an endangered tiger with a tranquilliser dart, rides bare-chested on horseback. Every adventure is staged to assert status, to keep his place at the top of the pack. Meetings with other leaders reek of power play and status anxiety, such as the notorious bilateral with Angela Merkel in which he introduced his labrador to a German chancellor known to fear dogs. Afterwards Merkel remarked: “I understand why he has to do this — to prove he’s a man. He’s afraid of his own weakness.” These absolutes emanate from Putin: nothing is less bearable than humiliation, nothing more important than pride.

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    North Korea State Media Warns of Nuclear Strike if Provoked as U.S. Warships Approach

    North Korean state media on Tuesday warned of a nuclear attack on the United States at any sign of U.S. aggression as a U.S. Navy strike group steamed towards the western Pacific.

    U.S. President Donald Trump, who has urged China to do more to rein in its impoverished neighbour, said in a Tweet North Korea was "looking for trouble" and the United States would "solve the problem" with or without China's help.

    Tension has escalated sharply on the Korean peninsula with talk of military action by the United States gaining traction following its strikes last week against Syria and amid concerns the reclusive North may soon conduct a sixth nuclear test.

    North Korea's official Rodong Sinmun newspaper said the country was prepared to respond to any aggression by the United States.

    "Our revolutionary strong army is keenly watching every move by enemy elements with our nuclear sight focused on the U.S. invasionary bases not only in South Korea and the Pacific operation theatre but also in the U.S. mainland," it said.

    South Korean acting President Hwang Kyo-ahn warned of "greater provocations" by North Korea and ordered the military to intensify monitoring and to ensure close communication with the United States.

    "It is possible the North may wage greater provocations such as a nuclear test timed with various anniversaries including the Supreme People's Assembly," said Hwang, acting leader since former president Park Geun-hye was removed amid a graft scandal.

    Trump said in a Tweet a trade deal between China and the United States would be "far better for them if they solved the North Korea problem".

    "If China decides to help, that would be great," he said. "If not, we will solve the problem without them!"

    Trump and his Chinese counterpart, Xi Jinping, met in Florida last week and Trump pressed Xi to do more to rein in North Korea.

    The North convened a Supreme People's Assembly session on Tuesday, one of its twice-yearly sessions in which major appointments are announced and national policy goals are formally approved. It did not immediately release details.

    But South Korean officials took pains to quell talk in social media of an impending security crisis or outbreak of war.

    "We'd like to ask precaution so as not to get blinded by exaggerated assessment about the security situation on the Korean peninsula," Defence Ministry spokesman Moon Sang-kyun said.

    Saturday is the 105th anniversary of the birth of Kim Il Sung, the country's founding father and grandfather of current ruler, Kim Jong Un.

    A military parade is expected in the North's capital, Pyongyang, to mark the day. North Korea often also marks important anniversaries with tests of its nuclear or missile capabilities in breach of U.N. Security Council resolutions.

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    World-Beating Stock Rally Hinges on Corporate India Profits

    Here is the opening of this informative story from Bloomberg:

    The fate of India’s world-beating stock-market rally hinges on a routine event: earnings season.

    Equities are trading near record levels in Mumbai, bolstered by bets that a state election victory will embolden Prime Minister Narendra Modi to push ahead with his reform agenda. Valuations rose to the highest level since 2010 at the end of March and the S&P BSE Sensex index is the top-performing gauge this year among the world’s 10 biggest stock markets.

    The gap between share prices and company profits has widened since 2014 on expectations economic growth will filter into bottom lines. That hasn’t happened consistently -- while India’s GDP expanded 7 percent or more in each of the last four quarters, Sensex profits fell in two of those periods amid a tepid investment climate and rising bad loans.

    “The return expectations have to moderate,” said Mahesh Patil, who helps manage about $30 billion in assets as co-chief investment of Birla Sunlife Asset Management Co. “If expectations are more realistic, the market should be able to deliver that in the medium term.”

    Earnings season kicks off Thursday, when software developer Infosys Ltd. is scheduled to report. Company results will show performance during the first full quarter since Modi ordered a recall of high-value currency notes in November in a bid to reduce graft.

    Sensex members will post a 9.1 percent increase in net incomes for the three months ended March, helped by higher commodity prices, Deutsche Bank said last week. That would be the biggest quarterly climb in a year, data compiled by Bloomberg show.

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    Brexit Liberating if May Seizes the Chances in Asia

    Here is the opening and also a concluding section of this topical article by Ambrose Evans-Pritchard for The Telegraph:

    “I’m a Remainer but there are more important issues for the British economy than whether or not we are members of the European Union. Maybe even some good could come from leaving,” he said.

    Whether Theresa May’s Tory Party is culturally disposed to meet this challenge is an open question. In his view the May government has been exasperatingly slow out of the starting gate: it has dropped the ball badly in Asia; and risks starving the country of vitally needed foreign talent with the wrong kind of immigration curbs.

    Jim O’Neill, who resigned from his post as Treasury minister last year after a string of policy disputes, said Theresa May has been skillful in handling talks with the EU. Nobody in sophisticated circles pays much attention to the tabloid dichotomy of “hard” and “soft” Brexits at this stage, an issue that has been overtaken by events.

    Yet she is surrounded by advisers with insular views who do not understand how fast the wider world is changing. “These people lack strategic perspective. We should have a minister almost permanently camped in China trying to do trade deals, but they simply don’t think about China when the get out of bed. It is not in their DNA,” he said.

    And:

    For all his criticism of the Government, he says the headline posturing over Brexit is largely aimed at placating elements of the Tory party and press. “The actual policy is much more nuanced,” he said.

    There will have to be some kind of free trade deal for the car industry given the complex cross-border supply chains. “It must be something close to the single market. If we fall back to WTO rules, there will be serious trouble,” he said.

    Surprisingly, Lord O’Neill is less worried about the City, where he had a ring-side seat for decades and learnt to judge the reflexes of the American and Asian finance houses.

    “People have exaggerated the risks. As we creep through the weeks it is pretty obvious that the big global players are going to shift marginal operations out of London, but the idea that large swaths of the financial industry will decamp to Frankfurt and Paris is just crazy,” he said.

    “They don’t have the social and human infrastructure, and the more imaginative EU leaders know that a flourishing City is actually good for Europe,” he said.

    “I didn’t want Brexit but, basically, we can cope.”

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    Why the Government Should be Spending More on Defence

    Here is the opening and also a latter section of this sensible column by Roger Bootle for The Telegraph:

    As regular readers know, I am not in the habit of recommending large increases in public expenditure. On the contrary, I want public spending to be kept under a tight rein so that the tax burden can be reduced, with consequent benefits from improved incentives and efficiency. But there is one area where I feel strongly that the British Government is not spending anywhere near enough – defence.

    Over recent decades it has been common for the public, egged on by politicians, to expect the state to solve just about every sort of problem in their lives. This statist philosophy derives from a failure to understand the appropriate role of government in the economy and society. For most sorts of economic activity, and a good deal of the rest of national life, government’s primary job should be to keep out of it.

    But there are several things that only the state can properly provide. Prime among these so called “public goods” is defence. Yet in the UK, defence spending has fallen sharply as a share of GDP. It is currently rumoured that the number of Royal Marines is about to be cut severely in order to save money. Meanwhile, the Royal Navy’s much depleted warship strength may also be reduced.

    This potential scaling back is not because of any assessment that the threats to the UK’s security have diminished. On the contrary, they have surely increased. It is driven entirely by the urge to save money, accompanied by the hope (fingers crossed!) that the UK, its dependent territories or its allies won’t face attack. This is economism gone mad. Sometimes economic considerations should take a backseat.

    Admittedly, the latest squeeze is prompted by the need to fund the construction of two large aircraft carriers. But the “economy drive” is nothing new. Before Mrs May took over as Prime Minister, the Cameron–Osborne duo devastated Britain’s armed forces in a bid to save what turned out to be comparatively small amounts of money. Meanwhile, quite apart from whatever they squandered elsewhere, they continued to honour the pledge to spend 0.7pc of GDP per annum on overseas aid, which has been enshrined in law.

    This is nonsensical. Unless the May–Hammond duo wish to go down in history as similarly complacent about the UK’s protection, this law needs to be repealed and a substantial part of the money saved should be redirected towards the defence budget. Being largely spent in the UK, this extra money would boost aggregate demand and create jobs, especially in manufacturing.

    And:

    Something similar is true of relations with the US. The more we can persuade the Trump administration that we have serious military capabilities to deploy in conjunction with US forces, the more likely it is that the US will put effort into securing a favourable US–UK trade deal, which would probably lead on to other favourable trade deals around the world.

    More fundamentally, military service brings large benefits to society, benefits that most members of recent British governments, with scarcely any military experience or connections, have failed to appreciate. Traditionally, people from working class backgrounds have gained a sense of discipline, self-worth and identification with the wider community through serving in the armed forces. Many of them have acquired trades and traits that have helped them to secure employment once they have rejoined “Civvy Street”.

    With globalisation and technological progress eroding traditional job opportunities, the potential contribution to human development from military service has increased. Yet there has probably never been a time in the UK’s recent history when the proportion of the population serving in our armed forces, and the corresponding extent of their influence in society, have been so low.

    Brexit isn’t the only challenge facing Mrs May. If she does not restore a good part of the UK’s fighting capability she will be judged by history as failing in a central part of her duties.

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    Nuclear Fusion Energy News: Infinite Power by 2030 with Nuclear Fusion Reactor?

    Nuclear fusion energy has often been sarcastically said to be always 30 years away. This scientific inside joke is meant to suggest we will never have the technology to make a working commercial nuclear fusion reactor. But despite the disappointments and failed promises over the last 50 years, the latest news suggests we might have reached a turning point in fusion energy research.

    Many people confuse nuclear fusion reactors with nuclear fission reactors. But fission operates on the principle of placing enough fissionable radioactive material – uranium or plutonium – together that a chain reaction will take place in which particles given off by the fuel smash into other atoms in the material to produce excess energy.

    This reaction has to be carefully managed through various means – including non-fissionable control rods – to avoid a disastrous runaway reaction.

    But all of the concerns that people have about fission reactors – and these concerns are definitely justified following the incidents at Chernobyl and Fukushima – don’t apply to a fusion reactor. Nuclear fusion reactors cannot melt down, explode, or otherwise fail catastrophically in a way that threatens the environment.

    If a nuclear fusion reactor did have a problem, it would simply stop working. In addition, the nuclear fusion energy production process produces very little radioactive waste – and what waste is produced has a much shorter half-life than the long-lasting, highly dangerous radioactive byproducts created by fission.

    Another advantage that a commercial fusion reactor would have over fission reactors is that fissionable materials are extremely difficult to find and process for use, making them very expensive and essentially a limited resource. A nuclear fusion reactor would likely use deuterium, which can be extracted from ordinary seawater in virtually unlimited quantities.

    Energy production via a nuclear fusion reactor has been on the wish list of many governments around the world, which is why an international project known as ITER was established to construct a massive experimental tokamak fusion reactor. As reported by the Manufacturer, the purpose is to confirm the feasibility of large-scale production of fusion energy.

    The ultimate goal of the project is for ITER to be the first fusion reactor to achieve the production of more energy than it requires to operate. Reaching this breakeven point has been the Holy Grail of fusion research. Thirty-eight nations have joined this effort to construct the experimental ITER reactor in southern France – with the cost being astronomical.

    However, the scientists, engineers and bureaucrats running this program admit that it will be many decades – perhaps as far away as 2050 – before an actual commercial reactor based on ITER will be in operation.

    It has become virtually a mantra for nuclear fusion energy researchers that bigger is, in fact, better when it comes to building a nuclear fusion reactor. This is why governments are pouring tens of billions of dollars into the construction of the colossal experimental ITER reactor – that itself will not produce energy for consumption.

    Fortunately, a number of other private organizations and companies around the world are trying to make fusion power a reality much quicker, perhaps even as soon as 2030. In addition, several individual governments have their own private nuclear fusion energy programs apart from ITER.

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