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You are here: Home / Foreign Affairs / War for Ukraine Day 694: Speaker Johnson is Doing Trump’s Bidding

War for Ukraine Day 694: Speaker Johnson is Doing Trump’s Bidding

by Adam L Silverman|  January 18, 20248:18 pm| 36 Comments

This post is in: Foreign Affairs, Foreign Policy, Military, Open Threads, Russia, Silverman on Security, War, War in Ukraine

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Part of the reason that Speaker Johnson has stated he will hold up the border security in exchange for supplemental aid to Ukraine is because Trump has told him to.

Isolationism and complete misunderstanding of American national interest. They are standing on the wrong side of history and will be judged harshly. https://t.co/6GKzHIF3iW

— Maria Popova (@PopovaProf) January 17, 2024

👀 Laura Ingraham says Trump just told her he opposes the Senate immigration deal and wants Mike Johnson to oppose it too, doesn’t think it’s needed to secure the border.

“President Trump is not wrong,” Johnson responds. “He and I have been talking about this pretty frequently.”

— Sahil Kapur (@sahilkapur) January 18, 2024

This is because 1) Trump wants to be able to continue to use immigration and the border as political weapons during the 2024 campaign and 2) he also wants Ukraine to lose. Johnson, of course, doesn’t want to be politically defenestrated by his own coalition because he believes he’s on a mission from the Deity.

Here is President Zelenskyy’s address from earlier today. Video below, English transcript after the jump.

Blocking Russia’s ways to circumvent sanctions means blocking terror – address by the President of Ukraine

18 January 2024 – 20:01

I wish you health, fellow Ukrainians!

Briefly about this day.

A very positive, truly inspiring conversation with President of France Macron.

I thanked him for the creation of an artillery coalition within our Ramstein defense format and for France’s willingness to supply Ukraine with dozens of very effective CAESAR artillery systems and ammunition for them this year.

We will further bolster our air defense as well, and I thank France for its powerful decisions.

Of course, today we discussed the situation on the battlefield in Ukraine – the details at the moment, and the prospects. Accordingly, we discussed what is important to include in the new defense package that France is currently preparing.

And, on top of all that, we discussed the work with France on security commitments for Ukraine. We are preparing a bilateral agreement.

Emmanuel, Mr. President, thank you once again.

We continue our communication with partners on sanctions against Russia – their full effect. All of our diplomatic representatives must step up their efforts to ensure that our partners respond more actively to every instance of Russia’s circumvention of sanctions.

This is not just an abstract question – it’s about how a terrorist state produces weapons, including missiles. All Russian missiles have dozens of critical components manufactured abroad, many of them by companies from the free world. Today, the Head of the Foreign Intelligence Service of Ukraine, Oleksandr Lytvynenko, made a report on this. These are clear facts. So blocking the ways Russia circumvents sanctions is literally blocking terror. I am grateful to all partners who understand this and to everyone in the world who helps us in this work.

Today I also held a meeting with the head of our government, Denys Shmyhal. First of all, we discussed the energy sector, the protection and capabilities of our energy system. Consumption is high now, and the threats from the enemy are extremely high, but the professional work of our power engineers and all those responsible for the protection of energy facilities makes it possible to provide the country with light and heat. And this is important. There was also a separate report on the protection of strategic energy facilities. The report was made by Deputy Prime Minister Oleksandr Kubrakov.

The Prime Minister also reported today on the situation in our financial system. The situation is stable, and social payments are being disbursed in full. Moreover, this is being done without issuance. And by the way, I would like to thank all our taxpayers in the country – everyone who keeps jobs in Ukraine, ensures production, and works legally and cleanly. Last year, despite the war, we had economic growth of 5% and an increase in tax payments that corresponds to the growth in the economy. This is a clear sign of Ukraine’s strength. And the state really appreciates everyone who works, pays taxes, and thus contributes to our common ability to defend the state and independence despite all the difficulties.

A separate report by the Prime Minister was made on the construction of fortifications. The work is ongoing, and I am grateful to everyone involved. The results are exactly what we need.

Glory to everyone who defends our country, who fights and works for Ukraine and who is as active as possible to ensure that Ukraine, Ukrainian companies, and Ukrainians get the results they need.

Glory to Ukraine!

France:

We are grateful to our French partners at @Armees_Gouv for their leadership in establishing the Artillery coalition.

Today, the Minister of the Armed Forces, Sébastien Lecornu @SebLecornu, announced that France would deliver 6 Caesars in the coming weeks and was capable of… https://t.co/eGNshutTuz

— Defense of Ukraine (@DefenceU) January 18, 2024

We are grateful to our French partners at @Armees_Gouv for their leadership in establishing the Artillery coalition.

Today, the Minister of the Armed Forces, Sébastien Lecornu @SebLecornu, announced that France would deliver 6 Caesars in the coming weeks and was capable of producing 72 additional ones in 2024 for Ukraine.
Thank you, France!
🇺🇦🤝🇫🇷

 

France will start supplying Ukraine with Armement Air-Sol Modulaire (AASM) aerial bombs. According to French Defense Minister Sébastien Lecornu the monthly output throughout 2024 will 50 missiles, starting in January.

Source: https://t.co/43WJQLoxCa#France #Ukraine pic.twitter.com/V2zopBrdF1

— (((Tendar))) (@Tendar) January 18, 2024

Bakhmut:

As promised I'm posting the video about the russian failed assault around Invanivske (Bakhmut)

The assault was repelled and many Ukrainian lives and lives of my friends were saved, and I can say that it happened thanks to you.

Ukrainian troops have to conserve the ammo and even… pic.twitter.com/dgEt6VlrpL

— ✙🍒 Constantine 🍒✙ (@Teoyaomiquu) January 18, 2024

As promised I’m posting the video about the russian failed assault around Invanivske (Bakhmut)

The assault was repelled and many Ukrainian lives and lives of my friends were saved, and I can say that it happened thanks to you.

Ukrainian troops have to conserve the ammo and even VOG17 (automatic grenade launcher ammo used as droplets from drones) is scarce. However, because of our support, the troops have drones and make one round as effective as 20 before.

The succesful defense is also was also made possible by skilled drone operators and coordination between them, at timestamp 2:05 on this video, you can see an effective use of drone pairs. Two pilots wait for the infantry to dismount the IFV and coordinate drops to ensure devastating effect on russian troops.

In the end I want to ask you to help our efforts to support our troops by donating here: https://paypal.com/pools/c/919PcoYG0W

The aid goes directly to our troops, they need our help more than ever before.

Drones Save Lives.

Slava Ukraini.

Russian occupied Luhansk Oblast:

A very curious situation developed in the so-called "Luhansk People's Republic": former employees of Wagner PMC, now attached to the 331st Regiment, 98th Division, decided on their own initiative to fight drug crime in the occupied territory.

According to the report, the… pic.twitter.com/oweA388ei5

— WarTranslated (Dmitri) (@wartranslated) January 19, 2024

A very curious situation developed in the so-called “Luhansk People’s Republic”: former employees of Wagner PMC, now attached to the 331st Regiment, 98th Division, decided on their own initiative to fight drug crime in the occupied territory.

According to the report, the fighters identified the narcotics traffic channel that supplied cannabis to the Russian servicemen, and rounded up people they believed to be involved in it, including a road traffic officer, without reporting to the local “police”. They recorded all footage of their righteous actions.

According to the fighters, the commander of the traffic “police” officer accused of selling drugs said that he would get his subordinate out and do his best to imprison the fighters.

The ex-Wagner fighters then received information this morning stating that their base in Stakhanov was about to be “assaulted”, and recorded a video appeal to stop it.

What is known so far is that the men were detained by local “police” for interrogation. Perhaps we will have access to more information later. I translated as much as I could in the time I had available. A lot more footage in Russain can be accessed here: https://t.me/romanov_92/43906

To be frank, this is probably the most batshit insane stuff I’ve seen this week.

Avdiivka:

Fighters of the 25th Assault Battalion of the 47th Mechanised Brigade talk about their experience defending Avdiivka. pic.twitter.com/IfCoIK85iS

— WarTranslated (Dmitri) (@wartranslated) January 18, 2024

Destruction of the Russian T-72B3 on the Avdiivka front. Interestingly, the author points out that Russians used this previously abandoned tank as an ammunition storage.https://t.co/0N5oweX2s3 pic.twitter.com/nbJXWMioSy

— Special Kherson Cat 🐈🇺🇦 (@bayraktar_1love) January 18, 2024

Nova Khakovka, Kherson Oblast:

Newly published archival footage of HIMARS strike on Russian column (as said with EW systems) in Nova Kakhovka, Kherson Region.
(46.7436857, 33.3750734)https://t.co/6GDE4PpVKP pic.twitter.com/i54KXrBAGU

— Special Kherson Cat 🐈🇺🇦 (@bayraktar_1love) January 18, 2024

It’s HIMARS O’Clock:

Left bank of the Dnipro, Russian occupied Kherson Oblast:

Russian Msta-S self propelled howitzer destroyed by FPV drone in the left bank Kherson region. https://t.co/CrXDvTw03y pic.twitter.com/SDGSXfZN1Q

— Special Kherson Cat 🐈🇺🇦 (@bayraktar_1love) January 18, 2024

Sevastopol, Russian occupied Crimea:

Electricity in some parts of Russian-occupied Sevastopol is gone.

Source: https://t.co/RnvJTeyoEK#Ukraine #Crimea #Sevastopol pic.twitter.com/9bKIDGj7la

— (((Tendar))) (@Tendar) January 18, 2024

Stary Oskol, Belgorod Oblast, Russia:

In Stary Oskol, Belgorod Region, somebody turned an electrical substation into an open air disco.

Source: https://t.co/hLFCkYopRt#Russia #Belgorod #Bilhorod pic.twitter.com/Jq0k7nIzbJ

— (((Tendar))) (@Tendar) January 18, 2024

Foreign Affairs has published a new essay by Graham Allison on the Trump effect as a result of the 2024 election. Here are some excerpts:

Leaders are now beginning to wake up to the fact that a year from now, former U.S. President Donald Trump could actually be returning to the White House. Accordingly, some foreign governments are increasingly factoring into their relationship with the United States what may come to be known as the “Trump put”—delaying choices in the expectation that they will be able to negotiate better deals with Washington a year from now because Trump will effectively establish a floor on how bad things can get for them. Others, by contrast, are beginning to search for what might be called a “Trump hedge”—analyzing the ways in which his return will likely leave them with worse options and preparing accordingly.

Russian President Vladimir Putin’s calculations in his war against Ukraine provide a vivid example of the Trump put. In recent months, as a stalemate has emerged on the ground, speculation has grown about Putin’s readiness to end the war. But as a result of the Trump put, it is far more likely that the war will still be raging this time next year. Despite some Ukrainians’ interest in an extended cease-fire or even an armistice to end the killing before another grim winter takes its toll, Putin knows that Trump has promised to end the war “in one day.” In Trump’s words: “I would tell [Ukrainian President Volodymyr] Zelensky, no more [aid]. You got to make a deal.” Facing a good chance that a year from now, Trump will offer terms much more advantageous for Russia than anything U.S. President Joe Biden would offer or Zelensky would agree to today, Putin will wait.

Ukraine’s allies in Europe, by contrast, must consider a Trump hedge. As the war approaches the end of its second year, daily pictures of destruction and deaths caused by Russian airstrikes and artillery shells have upended European illusions of living in a world in which war has become obsolete. Predictably, this has led to a revival of enthusiasm for the NATO alliance and its backbone: the U.S. commitment to come to the defense of any ally that is attacked. But as reports of polls showing Trump besting Biden are beginning to sink in, there is a growing fear. Germans, in particular, remember former Chancellor Angela Merkel’s conclusion from her painful encounters with Trump. As she described it, “We must fight for our future on our own.”

Trump is not the only U.S. leader to ask why a European community that has three times the population of Russia and a GDP more than nine times its size has to continue to depend on Washington to defend it. In an oft-cited interview with The Atlantic’s chief editor, Jeffrey Goldberg, in 2016, U.S. President Barack Obama lacerated Europeans (and others) for being “free riders.” But Trump has gone further. According to John Bolton, who was then Trump’s national security adviser, Trump said, “I don’t give a shit about NATO” during a 2019 meeting in which he talked seriously about withdrawing from the alliance altogether. In part, Trump’s threats were a bargaining ploy to force European states to meet their commitment to spend two percent of GDP on their own defense—but only in part. After two years of attempting to persuade Trump about the importance of the United States’s alliances, Secretary of Defense James Mattis concluded that his differences with the president were so profound that he could no longer serve, a position he explained candidly in his 2018 letter of resignation. Today, Trump’s campaign website calls for “fundamentally reevaluating NATO’s purpose and NATO’s mission.” When considering how many tanks or artillery shells to send to Ukraine, some Europeans are now pausing to ask whether they might need those arms for their own defense were Trump to be elected in November.

Historically, there have been eras when differences between Democrats and Republicans on major foreign policy issues were so modest that it could be said that “politics stops at the water’s edge.” This decade, however, is not one of them. Unhelpful as it may be to foreign-policy makers and their counterparts abroad, the U.S. Constitution schedules quadrennial equivalents of what in the business world would be an attempted hostile takeover.

As a result, on every issue—from negotiations on climate or trade or NATO’s support for Ukraine to attempts to persuade Putin, Chinese President Xi Jinping, or Saudi Crown Prince Mohammed bin Salman to act—Biden and his foreign policy team are finding themselves increasingly handicapped as their counterparts weigh Washington’s promises or threats against the likelihood that they will be dealing with a very different government a year from now. This year promises to be a year of danger as countries around the world watch U.S. politics with a combination of disbelief, fascination, horror, and hope. They know that this political theater will choose not only the next president of the United States but also the world’s most consequential leader.

Much more at the link.

That’s enough for tonight.

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Here’s a new video from Patron’s official cartoon page:

@patronthedog

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Open thread!

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Reader Interactions

36Comments

  1. 1.

    AlaskaReader

    January 18, 2024 at 8:19 pm

    Thanks Adam

  2. 2.

    teezyskeezy

    January 18, 2024 at 8:21 pm

    THey’ll be judged harshly if A. there is a world left to judge them in, and B. they don’t win and write the history books on it.

  3. 3.

    Adam L Silverman

    January 18, 2024 at 8:26 pm

    @AlaskaReader: You’re welcome.

  4. 4.

    Gin & Tonic

    January 18, 2024 at 8:35 pm

    Also in occupied Luhansk oblast, the FSB is hunting down kids who are still engaged in Ukrainian distance learning. Sorry, on a phone and can’t embed the relevant Tweets right now.

  5. 5.

    WaterGirl

    January 18, 2024 at 8:45 pm

    @Gin & Tonic: Does this mean something?

    зарубежная недвижимость

    There is a comment with this nym caught in the spam filter

  6. 6.

    Marleedog

    January 18, 2024 at 8:55 pm

    Google translate says “overseas real estate”

  7. 7.

    Adam L Silverman

    January 18, 2024 at 8:55 pm

    @WaterGirl: It translates as foreign real estate.

  8. 8.

    Mike in NC

    January 18, 2024 at 8:58 pm

    Traitor Trump can’t be convicted soon enough. The worst criminal this country ever produced.

  9. 9.

    Brachiator

    January 18, 2024 at 9:02 pm

    “President Trump is not wrong,” Johnson responds. “He and I have been talking about this pretty frequently.”

    Jesus H Christ.

  10. 10.

    Adam L Silverman

    January 18, 2024 at 9:04 pm

    @Brachiator: Pretty sure he was not on the call.

  11. 11.

    TeezySkeezy

    January 18, 2024 at 9:04 pm

    @Mike in NC: That’s the truth. It’s just unbelievable how terrible and shitty he is.

  12. 12.

    WaterGirl

    January 18, 2024 at 9:08 pm

    @Marleedog: I’ll definitely let him out of the spam filter then. //

  13. 13.

    The Kropenhagen Interpretation

    January 18, 2024 at 9:11 pm

    @Brachiator: “President Trump is not wrong,” Johnson responds. “He and I have been talking about this pretty frequently.”

    So Trump is out there doing foreign policy as a civilian, huh?

  14. 14.

    Peke Daddy

    January 18, 2024 at 9:17 pm

    1. @The Kropenhagen Interpretation: Logan Act? What’s that?
  15. 15.

    Peke Daddy

    January 18, 2024 at 9:18 pm

    @Brachiator: God created the heavens and the earth in six days, and he can’t turn the first GOPPER who offers a motion to vacate into a pillar of flame?

  16. 16.

    zhena gogolia

    January 18, 2024 at 9:21 pm

    @Brachiator: I’m sick to my stomach.

  17. 17.

    Elizabelle

    January 18, 2024 at 9:23 pm

    Traitor Johnson.

  18. 18.

    Nelle

    January 18, 2024 at 9:29 pm

    I keep calling my R congressman, a first-termer.  It doesn’t make a difference, does it?  I keep doing it, though.  His staff is nice and they listen well.  But it doesn’t make a difference, does it?  And yet, I keep doing it.  The hobgobblin of little minds, and all that.  (A foolish consistency is the hobgobblin of little minds – Ralph Waldo Emerson.)

  19. 19.

    Elizabelle

    January 18, 2024 at 9:32 pm

    @Nelle:  Proud of you for calling, and for all that you do.

  20. 20.

    Ksmiami

    January 18, 2024 at 9:33 pm

    I dont see how we go on tolerating the treasonous GOP.

  21. 21.

    Devore

    January 18, 2024 at 9:34 pm

    Nice to see the French helping more.   How about 100 Mirage fighters next

  22. 22.

    Elizabelle

    January 18, 2024 at 9:38 pm

    I think we should call Johnson the Speaker of the Duma.

  23. 23.

    Chetan Murthy

    January 18, 2024 at 9:40 pm

    @Devore:I read these articles about European countries starting to think about their own defense, and hence becoming more reluctant to provide arms to Ukraine.  And I think to myself: “better to fight them over there, than over here”.  Sigh.  It’s a pity Germany doesn’t understand this.

  24. 24.

    gene108

    January 18, 2024 at 9:42 pm

    @The Kropenhagen Interpretation:

    So Trump is out there doing foreign policy as a civilian, huh?

    Trump effectively controls the House of Representatives. Republicans have no interest in doing anything that goes against their bosses, like Trump, billionaires, right-wing media, and their very very angry constituents. They seem to just take orders, without any ideas of their own.

    Much of the country is okay with this.

  25. 25.

    wjca

    January 18, 2024 at 9:46 pm

    Johnson, of course, doesn’t want to be politically defenestrated by his own coalition because he believes he’s on a mission from the Deity.

    Since he let a CR get passed, that ship has probably sailed.  The window is already open.

  26. 26.

    gene108

    January 18, 2024 at 9:51 pm

    @wjca:

    I think House Republicans realize changing Speakers every few months is a bad look, and letting government shutdown in an election year won’t go over well.

    Also, Johnson is a Freedom Caucus conservative Christian zealot. They know deep down he’s on their side, unlike McCarthy.

  27. 27.

    AJ of the Mustard Search and Rescue Team

    January 18, 2024 at 9:58 pm

    Thank you Adam. Hope you’re getting some rest this week.

  28. 28.

    wjca

    January 18, 2024 at 10:02 pm

    @gene108:

    Two things: First, while it may well be that most of the Republicans in the House feel this way, all it takes under the stupid rules that McCarthy agreed to is a single nutcase making a Motion to Vacate the Chair.  And, given the tiny size of the GOP margin, it only takes 2-3 more to leave the House without a Speaker.  There are a lot more than that furious at the CR.

    Second, you rather assume coherent, not to mention logical, reasoning to a group which gives little evidence of either the capacity for it or interest in it.

  29. 29.

    Carlo Graziani

    January 18, 2024 at 10:15 pm

    @Nelle: In my opinion, you are absolutely doing a correct, and potentially effective thing. You should not assume that you are alone in your Congressional district feeling this way, or even the only one complaining to Congressional staffers. Who absolutely do count issue contacts from district constituents on behalf of their principal.

  30. 30.

    hrprogressive

    January 18, 2024 at 10:29 pm

    *The entire Fascist Republican Party is doing Putin’s bidding, not just Johnson.

    This is what they want. All of them want it, even if they won’t say it.

    Even McConnell, previously a pretty staunch “Russia = Bad” politician no longer says that.

    We’re doomed dot gif.

  31. 31.

    Nelle

    January 18, 2024 at 10:45 pm

    @Carlo Graziani: Thanks.  I’m hoping I’m a drip, one of many drips, eroding away this stubborn, fascist trance.

  32. 32.

    Carlo Graziani

    January 18, 2024 at 10:51 pm

    Paul Krugman has an interesting take in the NYT on China’s macroeconomic malaise (gift link). His thesis is basically that financial repression at the expense of households (“paying low interest on savings and making cheap loans to favored borrowers”) together with a weak social safety net that incentivises household savings, has suppressed consumer spending and resulted in an enormous accumulation of household capital, requiring unsustainable investment levels amounting to 40% of GDP. There is not enough productive domestic industry to absorb that amount of capital, so returns are stagnating.

    Krugman writes:

    To outside observers, what China must do seems straightforward: end financial repression and allow more of the economy’s income to flow through to households, and strengthen the social safety net so that consumers don’t feel the need to hoard cash. And as it does this it can ramp down its unsustainable investment spending.

    But there are powerful players, especially state-owned enterprises, that benefit from financial repression. And when it comes to strengthening the safety net, the leader of this supposedly communist regime sounds a bit like the governor of Mississippi, denouncing “welfarism” that creates “lazy people.”

    He concludes that China may be facing a deflationary economic contraction analogous to what Japan experienced following the 1980s.

    To Krugman’s analysis, I would add that a great deal of that capital has clearly been invested in unproductive and difficult-to-recall “Belt and Road Initiative” loans throughout the Global South. Depending on the relative size of this debt compared to the overall domestic debt, the risk may in fact not be that of a gradual contraction, but rather be in the nature of a sudden Minsky-moment debt-deflation spiral, as defaulting International debtors force the immediate recall of previously “solid” International and domestic loans by stressed financial institutions. The downstream consequences to the households originating the capital are so politically unimaginable that the PRC government would certainly intervene, at great cost to government and to vulnerable financial institutions. Think “2009”, but with far more fraught political implications.

  33. 33.

    Another Scott

    January 19, 2024 at 12:01 am

    @Carlo Graziani: The headline news reports I heard just mentioned the “5.2% GDP growth” – sounded pretty good.  But as you say, there’s lots of issues that are starting to bite.  VOANews.com:

    “That was a low target to begin with,” Tianlei Huang, a research fellow and China program coordinator at the Peterson Institute for International Economics, told VOA. As recently as 2021, he noted, the country’s economy was growing at above 8%.

    Economists believe China will have difficulty sustaining 2023’s level of growth this year. The World Bank’s latest projection, for example, has Chinese economic growth slowing to 4.5% in 2024.

    There were some encouraging signs, Huang said. For example, per capita household spending on goods and services grew at a rate higher than household disposable income, suggesting increased demand.

    Huang said there also is evidence suggesting that despite the government’s insistence the country is making strong economic progress, Chinese consumers are not confident about the future. He said that sentiment was made clear by the rising rate of money being placed in relatively low-yield bank savings accounts.

    “This is especially puzzling, because depository [interest] rates in China are declining,” Huang said. “So, they’re putting more money in bank savings accounts for lower returns. That reflects the fact that households are still concerned and are worried about their jobs and income in the future.”

    Deflation continues

    The data released Wednesday showed that in December, for the third consecutive month, consumer prices fell in China. This was despite an interest rate reduction by the People’s Bank of China, which was intended to spur consumption and drive up prices.

    [ Image FILE – A vendor sits outside his store selling souvenirs in Xiamen in southeast China’s Fujian province on Dec. 27, 2023. ]

    While it may seem like a positive development for consumers, persistent deflation can be very damaging economically, as it reduces the incentive businesses have to produce more goods and services. That in turn has negative follow-on effects on economic growth and employment levels.

    The Chinese government has sent some mixed signals about whether and how it will provide economic stimulus to help increase demand and push back on price deflation. On Tuesday, Bloomberg reported that Chinese leaders are weighing the possibility of issuing bonds worth 1 trillion yuan, or about $139 billion, as additional stimulus.

    And they’ve still got the huge property bubble that they’re trying to safely deflate…

    Cheers,
    Scott.

  34. 34.

    HeiSokoly

    January 19, 2024 at 12:03 am

    @wjca:

    Mike Johnson has more pressing and non-metaphorical concerns of defenestration if he aids Ukraine, as he owes his seat to the Kremlin in the first place. (One of these oligarchs supplying the dark money to American Ethane to launder was chief of staff to both Yeltsin and Putin, too, per an earlier Guardian article, and Roman Abramovich was sponsoring Johnson too, according to Mother Jones.)

    https://www.newsweek.com/house-speaker-mike-johnson-donations-russia-butina-1838501

  35. 35.

    YY_Sima Qian

    January 19, 2024 at 1:14 am

    @Carlo Graziani: Krugman’s analysis is a very conventional one, but I think like much of the macro economic thinking in the West (& much of the same in China), far too focused on GDP accounting identities & their favored mental models, that has not been updated for years.

    There has been financial suppression, since people in China have few avenues to invest their savings, other than bank accounts w/ low interest rates (yet still higher than in the U.S. before the pandemic induced inflation forced up rates), real estate, & the casino of a stock market that is largely untethered from the economic fundamentals.

    Yet, consumption in the PRC is suppressed not because household income has been suppressed. Household disposable income has soared over the past two+ decades, manufacturing wages have vaulted well past that of Thailand & Malaysia. The real estate bubble could not have gotten as large as it did otherwise, since Chinese consumers typically paid for their purchases w/ their savings & had low leverage, & the PRC financial system remains underdeveloped (& thus had low leverage overall).

    While a still developing social welfare system is a major factor for continued high savings rates, it has been improving over the past decade+, & continues to improve. A big driver for high household savings has in fact been the ballooning real estate prices. Another has been the escalating costs of the education arms race. Both contribute to the declining birth rate.

    Krugman also has to explain why Japan, SK & TW, w/ fantastic social welfare (certainly much better than the U.S.), still have high saving rates (although not quite as high as the PRC). He would probably say financial repression, too. However, high housing costs contribute to the propensity to save in all 3 economies. When households purchase a property, it is consumption from their perspective, but it falls under investment in GDP accounting.

    Furthermore, foot prices (especially pork) figure prominently in Chinese CPI indices, & prices of non-food items have been stable overall. The brutal price war in the auto industry has accounted for a substantial portion of the “deflation” in manufactured goods, but that is driven by fierce competition & cost cutting/efficiency gains, rather than lack of consumer demand. Units sold remain robust.

    The GDP “deflator” that accounts for the gap between nominal & real GDP was negative for 2023, but I suspect it is more likely the result of the PRC government massaging the data to make the real GDP growth look better, rather than structural deflation.

    There is little prospect of bad loans from the BRI causing a financial crisis. Just about US$ 1T of loans have been issued for BRI, & the rate of new loans has fallen significantly since circa 2017, that to Africa has reduced to a trickle. Not all of these loans will be bad, most will not be. Meanwhile, the People’s Bank of China is sitting on US$ 3T of official foreign currency reserves, & other state owned financial institutions have another US$ 1+T of foreign currency denominated assets as hidden reserve. This is how the PRC defended the exchange rate of RMB¥ 7.3 : US$ 1 throughout H2 2023 w/o breaking a sweat. The PRC has also been quite willing to restructure its loans so that the borrowing countries do not default, although it has not been happy to coordinate w/ the Paris Club countries or the private bond holders in these activities.

    The PRC’s foreign lending is well over an order of magnitude smaller than its domestic lending (> US$ 33T), likewise for the potential for non-performing loan portfolios. OTOH, most of the PRC’s domestic debt are left pocket owing to the right pocket, denominated in yuans. Outstanding household debt is < US$ 6T. Since the state owned banks are backstopped by the central government, there is little prospect for a Minsky moment. The central government remains in a very strong position to bail out the local governments & the state owned banks if it chooses. It has not done so at scale to date because Beijing wants to use this opportunity instill some discipline in the local governments, after the post-GFC profligacy, as well as renegotiate the central/local bargain on fiscal powers. Historically, the central government has only accounted for 15% of the total fiscal outlay in the PRC, a fraction of that in most other economies (it is 55% for the U.S. Federal government).

    If push comes to shove, both the central & local government hold enormous amount of assets that they can sell off to fund financial restructuring.

    Whether the PRC follows Japan’s footsteps depends on whether its economic transition is successful, & development of a more robust financial system. The stagnant real estate sector will be a drag for years. However, domestic investment has been shifting away from real estate back to manufacturing since 2018 (after pivoting away from manufacturing in the aftermaths of the GFC), accelerating after 2020. The manufacturing investment is driving much of the cost reduction & price reduction in manufactured goods. There is overcapacity, but when it comes to green energy, energy transition & AGW mitigation, analysis have consistently underestimated future demand by huge margins, precisely because Chinese manufacturing has driving down prices by so much so quickly, unlocking new demand in so doing. These are the areas that ORC investment had placed it in a dominant position.

    Plus, per capita GPD for the PRC today is still a fraction of that of Japan in the early 90s, so there is still a lot of catch up growth opportunities.

    It is the financial reforms, especially the development of a mature local government bond market, whose ultimate success is far from assured.

  36. 36.

    YY_Sima Qian

    January 19, 2024 at 1:22 am

    @Another Scott: Since real estate prices are still declining, & the stock market is doing poorly, where else can Chinese households park their savings other than bank savings accounts?

    Consumer & corporate sentiments are weak right now due to the economic uncertainty and the drag by the real estate sector. However, investment in every sector other than real estate showed decent growth (albeit from low 2022 baseline), so did household consumption, w/ rural households pacing urban ones. People are pinching their belts, though. They are holidaying domestically rather than overseas, gravitating toward cheaper cars than more expensive ones (hence the brutal price war). Group buying platforms are the rage. & I would certainly take the 5.2% real GDP growth w/ a big grain of salt, but I would treat all of the other estimates out there the same.

    The people most affected by the current economic turmoil are the upper middle class that had most of their net worth in real estate, the demographic foreign reporters & analysts tend to interact the most w/.

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