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Satchu's Rich Wrap-Up
 
 
Tuesday 26th of July 2022
 
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“Is it safe?”
World Of Finance

“Is it safe?”

In the movie Marathon Man [directed by John Schlesinger] Laurence Olivier who plays Dr. Christian Szell a Nazi war criminal straps Dustin Hoffman into a dentist's chair and without any anaesthetic starts drilling into Hoffman's mouth

“Is it safe?”

“Yes, it’s safe. Very safe. So safe you wouldn’t believe it.”
[long pause]
“Is it safe?”
“No. It’s not safe. It’s very dangerous. Be careful.”
That Snippet from that Film seems to me the perfect accompaniment preferably on an eternal loop to the World and the markets we find ourselves in today.
''We are off to Moscow off to Moscow we go to Regime Change The Wicked Witch of the West [or is it the East?] aka Vladimir Putin''
Nancy Pelosi has pronounced She is going further East all the way to Taiwan because real Men and Women go to China and Nancy fancies a Pop at ''Pooh Bear'' 

and meanwhile Xi has salami sliced his way and snaffled up Hong Kong and Nancy could provide him with the perfect excuse for a Taiwan casus Belli.

“Is it safe?” some of Us ask.
At the end of last week we saw a chink in the ''whatever it takes'' [to bring inflation down] Narrative. 
[The] Hike cycle terminal rate cruised lower to 3.28 (Orange) vs 3.49 last week (Blue) @Fullcarry.

The Dollar index came off the boil @dma_2022

and even the seriously beaten up Frontier Eurobond Index managed a small rebound.
After the #ECB hiked rates by 50bps, German 10y declined from >1.3% to almost 1% in a matter of 24h. German 2y down to 0.4%. @COdendahl

When I was a lot younger we used to play a Game called ''Red Eye'' Everyone gets a card and everyone else's card is visible to you except your own. And you bet on that basis. 

The Question is whether if this were a Game of Red Eye and the market has now seen that Powell and Lagarde are holding the 2 of spades and that this hiking cycle is near done. 

If that is the case, the Yen is a screaming Buy and the Dollar a Big Sell.
I do not expect Inflation to crash, however, which is a Caveat Emptor to this thesis and therefore the risk of Weimarisation is material.

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PAUSE FOR THOUGHT: MONEY WITHOUT VALUE IN A RAPIDLY DISINTEGRATING WORLD BY FABIO VIGHI
World Of Finance

PAUSE FOR THOUGHT: MONEY WITHOUT VALUE IN A RAPIDLY DISINTEGRATING WORLD BY FABIO VIGHI

The acceleration of the “emergency paradigm” since 2020 has a simple yet widely disavowed purpose: to conceal socioeconomic collapse. In today’s metaverse, things are the opposite of what they seem

In systemic terms, emergency addiction keeps the comatose body of capitalism artificially alive. 

Now it appears that a new Cold War is in the making, perhaps the mother of all emergencies. 

The elementary reason for this course of events is that the closer the system gets to collapse, the more it requires exogenous crises to distract and manipulate populations, while deferring its downfall and laying the ground for its authoritarian changeover.

The inflation genie that escaped the Covid bottle is now blamed on Putin, including its “apocalyptic” effect on the poor. 

However, it originates in the creation of immense amounts of “money without value” (i.e., money that is not “covered” by real accumulation) which by flowing into the real economy inevitably devalues the money medium itself. 

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The war in Ukraine is in its sixth month, and there’s no end in sight. Here’s what we know… James Rickards via DailyReckoning.com @zerohedge
Law & Politics


The war in Ukraine is in its sixth month, and there’s no end in sight. Here’s what we know… James Rickards via DailyReckoning.com @zerohedge

Almost everything you heard about the war in Ukraine from U.S. media over the course of March, April and May was a lie.

You heard that Putin was losing the war.
You heard that Russians had poor training and low morale and were deserting in droves. 

You heard that Ukrainians were destroying Russian armor in large numbers to blunt the Russian advance.
None of this was true.
In fact, Russian troops have achieved major victories in Mariupol, Kherson, Severodonetsk, Lysychansk and other key targets that control rivers, ports and junctions in Ukraine.
U.S. Willing to Fight Russia to the Last Ukrainian
This article isn’t about strategy and I don’t want to get too deeply into the weeds, but Russia’s next targets are Slovyansk and Bakhmut, which will consolidate Russia’s control over the Luhansk and Donetsk regions.
Russia has also deployed anti-drone laser systems that have neutralized Ukraine’s ability to target Russian positions with drones. 

The endgame is the takeover of Odessa, which would give Russia control of 100% of Ukraine’s coastlines along the Sea of Azov and the Black Sea.
A negotiated settlement that cedes Russian control over Crimea and the Russian-speaking parts of eastern Ukraine is probably the most realistic solution available to end the war. 

But the U.S. doesn’t want the war to end. Its plan is to wear Russia down through a protracted conflict, no matter how much the Ukrainian people suffer.
The battlefield situation aside, the story is even worse from the U.S. perspective…
Blowback!
Russia is not just winning the war on the ground. It’s winning the global financial and economic war launched by Biden and our European allies.
Russia’s revenues from oil and natural gas exports are at all-time highs. 

The Russian ruble is much stronger today than it was when the war began. 

China and India are buying all the Russian oil that Europe is refusing to buy.
Meanwhile, the economies of the U.S. and the EU are in or very near to recession. Inflation is out of control in the West. 

Commodity shortages will lead quickly to food shortages and more empty shelves in supermarkets.
Across the board, Biden’s economic sanctions have backfired and are hurting the U.S. and Europe far more than they are hurting Russia.
Not Pro-Russian, But Pro-Truth
I’ve been reporting honestly on the war since the beginning. My readers have not been misled by false reporting because I’ve been candid about the real impact of sanctions and Russia’s brutal but effective battlefield tactics.
It’s not that I’m pro-Russian — I’m not. I’m pro-truth. And I don’t defend the Russian invasion in any way (although I do understand it).
Even Bloomberg and The New York Times are now starting to admit that the war is a lost cause for Ukraine and the U.S. economy is suffering from sanctions aimed at Russia. But it’s a little late for legacy media to get their story straight.
What we know right now is the economic damage to the U.S. economy will get much worse before the economy gets better. Biden won’t stop the sanctions soon. That means the trashing of the U.S. economy will continue.
Meanwhile, Russia is “temporarily” shutting down the Nord Stream natural gas pipeline to Germany for repairs. 

Of course, the temporary shutdown may become permanent. It’s just more proof that U.S.-led sanctions only hurt the U.S. and Europe, not Russia.
Failed Sanctions Against Russia May Actually Lead to Other Wars
Here’s another potentially dangerous side effect of the failed sanctions campaign against Russia:
Economic sanctions may now facilitate war instead of preventing or stopping it. Why? Because U.S. sanctions on Russia are a complete failure. 

Nations considering invasions that might have been deterred because of sanctions threats may now feel emboldened and that they can proceed with confidence.
How this new dynamic plays out in hotspots like the Taiwan Strait remains to be seen. But it would be deeply ironic if sanctions actually encouraged China to move against Taiwan.
These are the sorts of issues that should be thoroughly thought through before action is taken. But our political leaders are incapable of thinking even one move ahead.
The U.S. has already committed about $56 billion to assist Ukraine, which will likely turn out to be a very poor investment. But American taxpayers might be fleeced even more…
Give Us More Money!
The prime minister of Ukraine has calmly asked an international conference for $750 billion of assistance to rebuild Ukraine after the war. Nice try. 

There are a few problems with this. First of all, there will be no Ukraine to rebuild, at least not in its current form.
Russia will take somewhere between a third and half the country and keep it. 

The parts that Russia is taking control of include the industrial nexus, the largest natural resource deposits and the most fertile land. 

Russia will be able to finance the reconstruction of their conquests using the very industrial capacity, mining and agricultural output they have captured.
Russia will also control the ports and major rivers and will be able to tax the remainder of Ukraine for access. 

The gradual result will be a prosperous part of Ukraine controlled by Russia and a desperately poor part of Ukraine left to the corrupt oligarchs under Zelenskyy.
You’re on the Hook to Rebuild Ukraine
When asked how Ukraine will finance the $750 billion demanded, the prime minister said they could use assets seized from Russian oligarchs. But that’s ridiculous. 

There may be $5 billion or $10 billion in yachts and townhouses, but nothing close to $750 billion.
The truth is that this money will be expected to come from the U.S. and the EU, either directly or indirectly through the World Bank and the IMF. 

In other words, you are going to pay for it one way or the other. Of course, most of the money would end up in the hands of corrupt Ukrainian oligarchs.
It’s unlikely much reconstruction will get done anyway because Ukraine has long been a money-laundering operation for the benefit of U.S. politicians including the Clintons, Bidens and Obamas.
That’s something to bear in mind when your taxes start going up to “help” Ukraine.

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Jul 3 Double, double toil and trouble; Fire burn, and cauldron bubble.
Law & Politics



Jul 3 Double, double toil and trouble; Fire burn, and cauldron bubble

The inability to read the battlefield, the extraordinary propaganda threads on Twitter, the deplatforming of any voice that countered the Propaganda effort have produced a ''Fairy Tale'' reality and a geoeconomic boomerang effect which is shredding the standard of living in the West and whose consequence will be Regime Change in Western Capitals long before Moscow.


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Jul 3 Double, double toil and trouble Fire burn, and cauldron bubble
Law & Politics



Jul 3 Double, double toil and trouble Fire burn, and cauldron bubble

The inability to read the battlefield, the extraordinary propaganda threads on Twitter, the deplatforming of any voice that countered the Propaganda effort have produced a ''Fairy Tale'' reality and a geoeconomic boomerang effect which is shredding the standard of living in the West and whose consequence will be Regime Change in Western Capitals long before Moscow.


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May 29 Vanity of Vanities! All is vanity
World Of Finance


May 29 Vanity of Vanities! All is vanity

The democratization of authority spurred by the digital revolution has flattened cognitive hierarchies along with other hierarchies, and political decision-making is now driven by often weaponized babble.
At a time when what is required is agile multi disciplinary thinking we have ''weaponized babble''

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Kissinger Knows Why the Global Leadership Deficit Is Getting Worse @business @washingtonpost @adwooldridge
Law & Politics


Kissinger Knows Why the Global Leadership Deficit Is Getting Worse @business @washingtonpost @adwooldridge 


The general crisis of global leadership continues to deepen. One of Europe’s most impressive leaders, Italy’s Mario Draghi, has resigned in frustration. 

The leading candidate to replace the UK’s Boris Johnson, Liz Truss, is likely to make even more of a hash of things than he did. 

(Dominic Cummings, Johnson’s one-time consigliere, uses a trolley emoji to denote Johnson, because he careers all over the place, and a hand grenade to denote Truss.) 

Across the Atlantic, Joe Biden is hampered not just by old age but by an approval rating of just 38%. 

And in the emerging world, the president of Sri Lanka, Gotabaya Rajapaksa, has been driven out of office and the crown prince of Saudi Arabia, Mohammed bin Salem, is wasting untold billions building a fantasy city in the desert, Neom, that features canals so that children can swim to school (thus solving the obesity crisis) and flying elevators.
Why is the quality of global leadership plummeting? 

The best explanation I have come across is provided by the 99-year-old Henry Kissinger in his new book, “Leadership: Six Studies in World Strategy.” 

This book should be prescribed reading for businesspeople not only because they need to understand an increasingly volatile political world, but also because the leadership problems that Kissinger diagnoses afflict businesspeople as well as politicians.


The ostensible subject of “Leadership” is the generation of leaders who made the postwar world: Konrad Adenauer, Charles de Gaulle, Richard Nixon, Anwar Sadat, Lee Kuan Yew and Margaret Thatcher. Kissinger knew all of these personally and, of course, worked intimately with Nixon.

But two pressing questions lie in the background: Will we see their like again — men and women who rise to the challenge of their times? 

And if we don’t, how much does it matter? Is history driven by abstract forces beyond our control? Are leaders merely “crests of foam” and “surface disturbances” as the French historian Fernand Braudel put it in “The Mediterranean and the Mediterranean World in the Age of Philip II”? 

Or are they capable of changing the direction of history?
Kissinger’s answer to the second question is overwhelmingly positive: Leaders may not be able to make history just as they please, but they can change its direction. 

Would France have remained a vital force in the postwar era without de Gaulle’s indomitable will and unshakeable belief in French grandeur? 

Or would Singapore have become a hub of the global economy without Lee’s obsession with cultivating talent and institutionalizing excellence? 

Sadat’s willingness to contemplate reconciliation with Israel, a revival of the “brotherhood of Ismail and Isaac” as he called it, surprised Israelis and Egyptians alike (and eventually got him assassinated). 

Nixon’s opening to China came as a bolt from the blue to the Cold War establishment. “Without leadership, institutions drift, and nations court growing irrelevance and, ultimately, disaster.”
Which makes his answer to the first question even more worrying: that the civilizational springs that water great leaders may be drying up. 

Nobody noticed this possibility during the “holiday from history” that followed the end of the Cold War. 

The job of political elites was essentially to consolidate the Reagan-Thatcher revolution while softening its harsher edges. 

The holiday from history is now over, thanks to the rise of strongmen in Russia and China and the rise in political volatility at home, but so far nobody comparable with the six figures who dominate this book has emerged.

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Kissinger Knows Why the Global Leadership Deficit Is Getting Worse @business @washingtonpost @adwooldridge [continued]
Law & Politics



Kissinger Knows Why the Global Leadership Deficit Is Getting Worse @business @washingtonpost @adwooldridge [continued]



Leadership is most vital during a period of transition from one order to another

We are certainly in such a period now — not only from the neoliberal order to something much darker but also to a new era of smart machines — yet so far leadership is lacking. We call for leaders who are equal to the times, but nobody answers.  
Kissinger offers two explanations for this troubling silence. 

The first lies in the evolution of meritocracy. (Full disclosure: He mentions a book I have written on this subject). 

The six leaders were all born outside the pale of the aristocratic elite that had hitherto dominated politics, and particularly foreign policy: Adenauer and Sadat were the sons of clerks, 

Thatcher and Nixon were the children of storekeepers, Lee’s parents were downwardly mobile. But theirs was a meritocracy with an aristocratic flavor. 

They went to elite schools and universities that provided an education in human excellence rather than just passing tests. 

In rubbing shoulders with members of the old elite, they absorbed some of its ethic of noblesse oblige (“For unto whomsoever much is given, of him shall be much required”) as well as its distaste for populism. 

Hence Lee’s recurring references to “Junzi” (Confucian gentlemen) and de Gaulle’s striving to become a “man of character.” They believed in history, tradition and, in most cases, God.
The world has become much more meritocratic since Kissinger’s six made their careers, not least when it comes to women and ethnic minorities. 

But the dilution of the aristocratic element in the mix may also have removed some of the grit that produced the pearl of leadership: Schools have given up providing an education in human excellence — the very idea would be triggering! — and ambitious young people speak less of obligation than of self-expression or personal advancement. 

The bonds of character and duty that once bound leaders to their people are dissolving.

The second factor Kissinger identifies is the decline of deep literacy under an onslaught of visual images and verbal snippets. 

A great leader’s first task is analysis — assessing the state of your society in the light of its history and mores. 

It is only when you have learned how to distinguish between significant facts and mere epiphenomena and simulacra that you can become an agent of change. 

The second task is education — convincing the public to share your vision of the future and bear the costs of historical change. 

But how can you understand your situation unless you study it deeply? And how can you get people to follow you unless you can produce soul-stirring rhetoric?
All six of Kissinger’s heroes were serious readers and writers. Sadat spent almost six years in solitary confinement with only books for comfort. 

In 1933, Adenauer retreated to a monastery to escape from the Nazis and spent his time studying two papal encyclicals, promulgated by Popes Leo XIII and Pius XI, which applied Catholic teachings to socioeconomic conditions. 

Thatcher read her official briefs until early in the morning and drew attention to grammatical errors and stylistic blunders. 

De Gaulle wrote some immortal French. Deep literacy provided them with what Max Weber called “proportion” — “the ability to allow realities to impinge on you while maintaining an inner calm and composure.” 

It also provided them with a sense of perspective as they put daily events into the wider scheme of history or even God’s will.
Today’s visual culture does exactly the opposite: It destroys any sense of “proportion” by immersing us in a never-ending stream of images and kills any sense of perspective by bombarding us with “breaking news.” 

Politicians devote ever more time to curating their image on Twitter and Instagram. Liz Truss is reportedly so addicted to “Insta” that, when she ran the Department of International Trade, employees dubbed it “the Department for Instagramming Truss.”

I would add two more problems to Kissinger’s list: the collapse of followership, a subject that I have written about before, and the crisis of the university. 

Universities have assumed an ever more central role in training today’s leaders as knowledge becomes more vital for success and other training institutions such as trade unions are marginalized. 

But if anything, they are getting worse at the job of producing leaders. 

Both students and faculty, particularly younger faculty, are in the grip of what Oliver Wendell Holmes called “the effervescence of democratic negation.” 

Academics are selected and promoted based on how many articles they produce rather than how much care they take over nurturing their charges. 

Liberal orthodoxy is now so entrenched that students don’t get a chance to engage with conservative or in some cases mainstream ideas: 

A recent survey by the Harvard Crimson newspaper found that only 1.4% of faculty members would describe themselves as “conservative.” 

To the extent that “character” is considered, it is interpreted purely in terms of social justice rather than older ideas of duty, service and nation-building.
What does all this mean for the business world? A popular thesis in the Davos class is that we suffer not so much from a decline in the number of outstanding leaders as from a reallocation of leadership talent from the public sector to the private sector. 

These days high achievers are naturally drawn to the private sector with its higher salaries and fast tracks to the top. 

Political parties are left with a noxious mixture of hacks and fanatics. And the obvious way to solve the public sector’s leadership problems is to draft in more people from the “real world.”
There is certainly something in this: America, for example, has benefited from its ability to recruit mayors from the business world. 

But I suspect that the crisis that Kissinger diagnoses applies to the private sector as well as the public sector. 

The meritocratic problem is even more marked in business than it is in politics: Most senior businesspeople believe that they deserve their pay and perks because they work so hard and possess such rare talent. 

(The current vogue for corporate wokery seems to have done nothing to reduce CEO pay, let alone restore it to the more modest levels that prevailed in a more patrician age.) 

The decline of deep literacy is just as much a problem in the boardroom as in the stateroom: Business leaders are simply too overwhelmed by fast-changing data to stand back and look at the bigger picture. 

The problem is at its worst in Silicon Valley where — to judge by the pronouncements of many leading tech entrepreneurs — extraordinary power over the world’s future seems to be combined with an almost child-like understanding of the human condition.

There are lots of things that we can do to address the leadership crisis on our own accounts. Leaders and would-be leaders can make sure that they carve out time for serious reading or calm reflection: 

Even when he was running Microsoft Corp. from day-to-day, Bill Gates would retreat to an isolated cottage for a week and meditate on a big subject. 

Parents can prepare their children for the world by encouraging them to read great literature or, better still, commit some of it to memory. 

But individual action is unlikely ever to be enough given the size of the forces eroding the store of leadership qualities. 

We need to do more to protect society from the digital deluge — perhaps following Finland and requiring schools to teach children about fake news. 

We also need to add a little more old-fashioned conservatism to our educational systems — emphasizing the importance of duty and high culture as well as the claims of meritocracy, on the one hand, and social justice, on the other.

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May 29 Vanity of Vanities! All is vanity
Law & Politics


May 29 Vanity of Vanities! All is vanity


One of the best descriptions of the current zeitgeist was written in a blog [dated] OCTOBER 30, 2014 BY DOMINIC CUMMINGS The Hollow Men II [2]
Complexity makes prediction hard. Our world is based on extremely complex, nonlinear, interdependent networks (physical, mental, social). Properties emerge from feedback between vast numbers of interactions: for example, the war of ant colonies, the immune system’s defences, market prices, and abstract thoughts all emerge from the interaction of millions of individual agents. Interdependence, feedback, and nonlinearity mean that systems are fragile and vulnerable to nonlinear shocks: ‘big things come from small beginnings’ and problems cascade, ‘they come not single spies / But in battalions’. Prediction is extremely hard even for small timescales. Effective action and (even loose) control are very hard and most endeavours fail.
In the same article Cummings continues
Blofeld: Kronsteen, you are sure this plan is foolproof?
Kronsteen: Yes it is, because I have anticipated every possible variation of counter-move.
Politics therefore suffers from a surfeit of narcissists.
The occupants of No10, like Tolstoy’s characters in War and Peace, are blown around by forces they do not comprehend as they gossip, intrigue, and babble to the media.
The MPs and spin doctors steer their priorities according to the rapidly shifting sands of the pundits who they are all spinning, while the pundits shift (to some extent unconsciously) according to the polls.
The outcome? Everybody rushes around in tailspins assembling circular firing squads while the real dynamics of opinion play out largely untouched by their conscious actions.
In terms of a method to ‘manage’ government, it is not far from tribal elders howling incantations around the camp fire after inspecting the entrails of slaughtered animals. 
Layer on top of this a highly managed media construct which is essentially a Claque where alternative voices are deplatformed and we have an environment which was accurately described thus by @FukuyamaFrancis
The democratization of authority spurred by the digital revolution has flattened cognitive hierarchies along with other hierarchies, and political decision-making is now driven by often weaponized babble.
At a time when what is required is agile multi disciplinary thinking we have ''weaponized babble''
The Hubris is at a Shakespeare level
Hubris (/ˈhjuːbrɪs/; from Ancient Greek ὕβρις (húbris) 'pride, insolence, outrage') describes a personality quality of extreme or excessive pride or dangerous overconfidence, often in combination with (or synonymous with) arrogance
Meanwhile Our Leaders make speeches at  Davos, dress up in military fatigues and call for Regime change. It is a complete farce.

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Currency Markets at a Glance WSJ
World Currencies

Euro 1.0219
Dollar Index 106.22
Japan Yen 136.66
Swiss Franc 0.9650
Pound 1.2046
Aussie 0.6962
India Rupee 79.758
South Korea Won 1307.955
Brazil Real 5.3589
Egypt Pound 18.88
South Africa Rand 16.76

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SHINING A LIGHT ON DEBT IMF’s @CeylaP_IMF and World Bank’s @CarmenReinhart in F&D
Emerging Markets


SHINING A LIGHT ON DEBT  IMF’s @CeylaP_IMF and World Bank’s @CarmenReinhart in F&D


As the COVID-19 crisis lingers, emerging market and developing economies are entering perilous waters that evoke memories of past debt defaults. 

Although all countries amassed debt to fight the pandemic, the economic recovery in these economies substantially lags their advanced economy counterparts. 

Tighter monetary policies in advanced economies are poised to push up international interest rates, which tends to put pressure on currencies and heighten the odds of default. 

To complicate matters, the extent of many emerging market and developing economy liabilities and their terms aren’t fully known. 

If they are to foster a sustained recovery and limit the risk of a crisis, they must make a full accounting of hidden debts, both public and private.
Emerging market and developing economies are facing complex challenges, with weaker growth prospects, limited fiscal space, and higher refinancing risks due to the shorter maturity of public debt, according to the IMF’s October 2021 Fiscal Monitor. 

Many are debt intolerant because, among other factors, of their credit history and greater macroeconomic volatility. 

Many have encountered crises at lower debt levels (Chart 1) than those prevailing in 2021 (Reinhart, Rogoff, and Savastano 2003).
A common feature of debt crises has been a sudden jump in debt levels, often driven by large exchange rate depreciations in countries with foreign currency debt, and governments’ assumption of so-called contingent liabilities amassed by state-owned enterprises, subnational governments, banks, or corporations. 

Because these crises are associated with lower growth, higher inflation, and setbacks in the fight against poverty and other development goals, protracted defaults are damaging to the economic and social fabric of the debtor country.
Public sector foreign currency debt remains a vulnerability (though perhaps less so than in the past). 

Sustained exchange rate depreciation could pressure governments to rescue private entities that have large foreign currency liabilities. 

Such rescues could trigger a sudden rise in public borrowing needs, as happened in numerous earlier crises in both advanced and emerging market and developing economies.
Emerging market sovereign spreads are, on average, close to their pre-pandemic levels even as public debt levels have risen and sovereign credit ratings have been marked down. 

However, despite the low global interest rates of the past decade, emerging markets’ external debt-servicing burden has been steadily climbing (Chart 2), with a sharp rise in 2020, as exports slumped, debt spiked, and borrowing terms deteriorated for many of these economies.

Global financial conditions are set to deteriorate as central banks in advanced economies tighten policy to fight unexpectedly persistent inflation pressure. 

Declining overseas lending by China is poised to reinforce this trend as China deals with its own property sector bankruptcies and the souring of many of its loans to emerging market and developing economies.

Furthermore, the share of sovereign domestic debt in these economies has increased sharply in the past two decades (IMF 2021). 

Governments turned to the domestic banking system to meet their financing needs as overseas investors withdrew during the pandemic. 

The increase in government debt held by emerging market domestic banks implies that sovereign debt distress could spread to banks, pension funds, households, and other parts of the domestic economy.
Debt risks are high and are likely to remain so for several years, as the pandemic has increased the gross financing needs of the public sector on a sustained basis among emerging market and developing economies. 

Many have run down domestic sources of financing. And their ability to borrow from domestic central banks—which some countries have done extensively since early 2020—will be more limited if inflation pressure persists. 

These developments may make emerging market and developing economies more dependent on external financing and expose them to greater risks of a sudden stop in external financing. 

Last, but not least, financing needs—and debt—have a habit of coming in higher than expected.
Opaque balance sheets
Many debtor governments, seeking to avoid a disorderly and protracted default, face a major obstacle: the true extent of their liabilities or terms is often not fully known to many of their creditors or the international financial institutions that support them. 

During the period of high global commodity prices and relative prosperity that lasted until about 2014, many emerging market and developing economies looked beyond the Paris Club of official creditors and borrowed heavily from other governments, particularly China. 

A substantial share of these debts went unrecorded in major databases and remained off the radar of credit-rating firms. 

External borrowing by state-owned or guaranteed enterprises, which have uneven reporting standards, also escalated. 

The boom in hidden debts has given way to a rise in unrecorded debt restructuring (Chart 3) and hidden defaults (Horn, Reinhart, and Trebesch, forthcoming). 

Comparatively little is known about the terms of these debts or their restructuring terms. Historically, opacity derails crisis resolution or, at a minimum, delays it. 

The lack of balance sheet transparency extends beyond the public sector. 

As the 2022 World Development Report highlights, many countries introduced accounting and regulatory forbearance and guarantees to mitigate the impact of the pandemic on the economy. 

The unintended consequence of these measures is the potential for an increase in nonperforming loans that are not yet reflected on banks’ balance sheets. 

The rise in hidden nonperforming loans, together with increased sovereign debt holdings, has reinforced the so-called sovereign-bank nexus, in which the financial soundness of banks has become increasingly intertwined with that of governments. 

Banking and sovereign debt crises have often erupted in close succession (Reinhart and Rogoff 2011). The pandemic has strengthened this “doom loop” while increasing the opacity of private and public balance sheets.

Detection, transparency, and resolution
An encompassing strategy to increase the transparency of the public, financial, and corporate sectors and assess and address identified balance sheet risks is a first step in both supporting economic recovery in emerging market and developing economies and resolving sovereign debt problems in countries already in distress. 

More than a year has passed since the Group of Twenty introduced the Common Framework for Debt Treatments to deal with sovereigns facing sustained debt problems; to date, not a single country restructuring has been achieved. 

As in earlier episodes, the nature of delays is varied and traces to both creditors and debtors, and urgent action is needed by all relevant stakeholders to ensure that the Common Framework delivers. 

That includes clarifying steps and timelines on the Common Framework process and suspending debt-service payments until negotiations are completed.
Debt contracts are a critical area that needs more transparency. Beyond the usual terms (maturity, interest rates, currency), key features (collateral, cross-default, secrecy clauses, and so on) of many emerging market debt contracts are often undisclosed. 

Collateralized external public debt has risen in recent years, but accurate measures of its prevalence are limited. 

Reliance on collateralized syndicated bonds and loans from private creditors is concentrated in a few countries, including opaque contracts with oil traders. 

There is also some evidence to suggest that many of China’s bilateral infrastructure loans are collateralized (Gelpern and others 2021).
As we have argued elsewhere, transparency cannot overcome all the challenges, but it can go a long way toward increasing the odds of faster and orderly debt restructuring by building trust among creditor groups, which at present is rather low. 

Disclosure must come from all creditors and debtors—multilaterals continue to expand their coverage of data gaps in existing databases, while building new ones that are more all-encompassing, and revise their lending policies to enhance disclosure requirements.
Fiscal, monetary, and financial sector policies have supported financial stability during the pandemic. 

The eventual withdrawal of these measures may uncover vulnerabilities that could lead to banking sector stress. 

Timely action is critical and will require improving the transparency of banks’ asset quality, including exposures to the sovereign and contingent liabilities, through asset quality reviews as well as stress testing exercises to prepare contingency plans. 

An accurate diagnosis of risks is a first step toward problem resolution and asset restructuring where needed.
Muddling through by evergreening—renewing loans indefinitely—which has been replayed many times before, is a recipe for delayed recovery. 

When the assessments call for credible recapitalization plans or restructuring of liabilities, these should be carried out swiftly in ways that do not markedly worsen sovereign debt burdens. 

Conditions in some countries may require government intervention, including targeted programs to alleviate debt overhangs in the household and commercial real estate sectors. 

Importantly, to avoid “zombification,” asset restructuring must be driven by market forces, supported by tighter regulations—including in the areas of loan-loss classification, provisioning, and disclosure—and enhanced supervision.
The IMF and the World Bank will continue to support the transparency agenda through data dissemination, capacity building, and lending policies to assist with sovereign debt restructuring. In an ongoing review of IMF policies for lending to countries in arrears or undergoing restructuring, the staff is proposing a new policy under which the IMF can lend only if countries share comprehensive information about their debt stock and debt terms (in the aggregate) with all creditors. Such information sharing would be expected regardless of whether countries are already in arrears or seeking to avoid arrears.
Debt coverage in the World Bank’s International Debt Statistics has increased substantially in the most recent year. 

The latest edition identified and added almost $200 billion in previously unreported loans to past statistics, the single largest increase in debt coverage in the 50-year history of the World Bank’s debt report publications (Horn, Mihalyi, and Nickol 2022). 

About 60 percent of low-income countries are now at high risk of or already in debt distress, compared with fewer than 30 percent in 2015. While the transparency gaps are particularly acute in these countries, these challenges are also widespread among emerging market and developing economies. 

The risks of not addressing these gaps promptly are both significant and rising rapidly.

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Pakistan: Rupee fell 8% last week @ZiadMDaoud
Emerging Markets


Pakistan: Rupee fell 8% last week @ZiadMDaoud

- Biggest drop in >2 decades
- Foreign reserves cover <2 months of imports
- Central bank is curbing interbank trade to contain dollar shortage

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@EmmanuelMacron embarks on African visit to 'renew relationship' with continent @FRANCE24
Africa


@EmmanuelMacron  embarks on African visit to 'renew relationship' with continent @FRANCE24 

President Emmanuel Macron on Monday begins a three-nation tour of western African states in the first trip to Africa of his new term as he seeks to reboot France's post-colonial relationship with the continent.
Macron will begin his July 25-28 tour, also the first venture outside Europe of his new mandate, with a visit to Cameroon, before moving on to Benin and then finishing the trip in Guinea-Bissau.
At the top of the agenda in the talks will be food supply issues, with African nations fearing shortages especially of grain due to Russia's invasion of Ukraine.
But security will also loom large as France prepares to complete its pullout from Mali this year, with all countries in the region seeking to head off fears of Islamist insurgencies.
The trip to three countries which rarely feature on the itinerary of global leaders comes with Macron, who won a new term in April, pledging to keep up his bid for a new relationship between France and Africa.
France has also followed with concern the emergence of other powers seeking a foothold in an area Paris still considers parts of its sphere of influence, notably Turkey under President Recep Tayyip Erdogan but also increasingly China and Russia.
The tour "will show the commitment of the president in the process of renewing the relationship with the African continent", said a French presidential official, who asked not to be named.
It will signal that the African continent is a "political priority" of his presidency.
In Cameroon, which has been riven by ethnic violence and an insurgency by anglophone separatists, Macron will meet President Paul Biya, 89, who has ruled the country for almost 40 years and is the longest-serving non-royal leader in the world.
Biya has run the country with an iron fist, refusing demands for federalism and cracking down on the rebellion by separatists. 
Macron will move on Wednesday to Benin, a neighbour of Africa's most populous nation Nigeria. 

The north of the country has faced more deadly attacks, with the jihadist threat now spreading from the Sahel to Gulf of Guinea nations.
He is likely to be lauded for championing the return in November of 26 historic treasures which were stolen in 1892 by French colonial forces from Abomey, capital of the former Dahomey kingdom located in the south of modern-day Benin.
Benin was long praised for its thriving multi-party democracy. But critics say its democracy has steadily eroded under President Patrice Talon over the last half decade. 

Opposition leader Reckya Madougou was sentenced in 2021 to 20 years in prison on terrorism charges.
On Thursday, Macron will finish his tour in Guinea-Bissau, which has been riven by political crisis at a time when its President Umaro Sissoco Embalo is preparing to take the helm of the Economic Community of West African States (ECOWAS).
With all the countries criticised by activists over their rights records, the Elysee has insisted that governance and rights issues will be raised, albeit "without media noise but in the form of direct exchanges between the heads of states". 
Macron's first term was marked by visits to non-francophone African countries including regional powerhouses Nigeria and South Africa as he sought to engage with the entire continent and not just former French possessions.
Benin is a former French colony, but Guinea-Bissau was once a Portuguese colony while Cameroon's colonial heritage is a mixture of British and German as well as French.
Macron meanwhile has insisted France's military presence in the region will adapt rather than disappear once the pullout from Mali is complete.
He announced last week that a rethink of France's presence would be complete by autumn, saying the military should be "less exposed" in the future but their deployment still a "strategic necessity".
The pullout from Mali follows a breakdown in relations with the country's ruling junta, which Western states accuse of relying on Russian Wagner mercenaries rather than European allies to fight an Islamist insurgency. 

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From Russia with Love
Africa


From Russia with Love

“Our African agenda is positive and future-oriented. We do not ally with someone against someone else, and we strongly oppose any geopolitical games involving Africa.”

“Russia regards Africa as an important and active participant in the emerging polycentric architecture of the world order and an ally in protecting international law against attempts to undermine it,” said Russian deputy foreign minister Mikhail Bogdanov back in November 2018.

Andrew Korybko writes Moscow invaluably fills the much-needed niche of providing its partners there with “Democratic Security”, or in other words, the cost-effective and low-commitment capabilities needed to thwart colour revolutions and resolve unconventional Wars (collectively referred to as Hybrid War).
To simplify, Russia’s “political technologists” have reportedly devised bespoke solutions for confronting in- cipient and ongoing color revolutions, just like its private military contractors (PMCs) have supposedly done the same when it comes to ending insurgencies.

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Ghana Halts Interest-Rate Hikes on Growth Concerns @markets @economics
Africa


Ghana Halts Interest-Rate Hikes on Growth Concerns @markets @economics 

Central bank holds key rate at 19% after two successive hikes

The monetary policy committee maintained the policy rate at 19%, Governor Ernest Addison told reporters Monday in the capital, Accra. 

That’s after cumulative rate hikes of 550 basis points since November. Only three of 10 economists in a Bloomberg survey forecast the unchanged stance.

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Currency of East Africa’s largest economy reached its weakest intraday level of 119.03 in early Monday trading. The unit has dropped 5% since the start of the year @markets @eombok
Kenyan Economy


The shilling’s “wobbles have been both sentiment- and market dynamics-driven,” IC Group economist Churchill Ogutu said. 

“The developments immediately after the polls will no doubt drive sentiment on KES, though I expect it to be short-lived.”
Kenyan authorities need to address dollar-supply concerns, as this will have a more durable impact on the exchange rate, he said. 
The East African nation’s biggest source of foreign currency is remittances by citizens living outside its borders. 

Inflows in the first six months of 2022 rose 17% to $2.04 billion from a year earlier, according to central bank data.
Meanwhile, usable foreign-exchange reserves decreased to $7.73 billion as of July 21, from $7.95 billion a week earlier. 

They are sufficient for 4.46 months of import cover, below the East African Community’s threshold of 4.5 months.

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by Aly Khan Satchu (www.rich.co.ke)
 
 
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July 2022
 
 
 
 
 
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