China's Economic Demise And Its Impact On The US

   Kyle Bass has always been extremely pessimistic about China. He does make good points but it is often only half the story. Still, the real estate bubble is real and the problem gigantic. 

   I remember 10 years ago when I was visiting China regularly, I was stunned to see the amazing number of new constructions around Shanghai. Who was going to live in these luxury apartments? 500.000 dollars sounded like a lot of money at the time. Certainly more than what the engineers I was working with could afford. But I was wrong they explained. By leveraging their salaries skillfully, putting 10% upfront on a property and reselling it within a few years at twice the acquisition price, they all were convinced that soon enough a nice penthouse with a view of the river in Pudong would be theirs. Really? 

   Then there was the countryside. Typical little villages along a canal with dense rows of two story houses, a few paddy fields and suddenly in the background, 20 blocks of 30 floors apartment buildings. Who for? Speculation mostly they explained. No need for anyone to live there. You buy a flat then resell it with a profit. It was actually a bad idea to move in since the value could fall by as much as half instead of going up. Really?   

   I was busy doing my job, the Chinese were busy making money, nobody was asking the hard questions: Who was going to buy these hot potatoes in the end? The answer to that question of course ended up being "nobody" and this is how the whole Middle Class in China is now the unhappy owner of two or sometimes more "nice" apartments which value is anybody's guess and most certainly less than the original price because there is no demand whatsoever. 

   So what's next? The prices must return to earth so that some (non speculative) demand can be generated. For this to happen, millions of people will have to pay back the banks for what is called negative equity and likewise the banks will need to lend more money to developers so that they can pretend to at least pay back the interest on the loans although everyone understands that the principal can never be paid back. This is the unavoidable consequence of a bubble. The alternative is hyperinflation and the destruction of the currency. The one thing that China doesn't want. 

   So as far as the analysis is concerned, we mostly agree with Kyle Bass. But then comes his conclusion that consequently, everybody will invest in the dollar market because it is so much more liquid and secure. Really? As far a liquidity is concerned, it is certain that Congress is doing it's very best to increase it by opening the floodgates of budget deficit but will this reassure foreign investors? As for security, well, that too is looking a little more shaky with endless restrictions on trade and cross border transactions for whoever doesn't get along nice with the White House current bully. 

Authored by Lance Roberts via RealInvestmentAdvice.com,

Few are as candid and historically accurate as hedge fund manager Kyle Bass when identifying structural breaks in the global economy. In a recent interview, Bass painted a grim but telling picture of China’s economic condition, warning:

“We are witnessing the largest macroeconomic imbalances the world has ever seen, and they are all coming to a head in China.”

While China has long been touted as the next great economic superpower, its recent trajectory reveals a far different story, one marked by policy missteps, systemic financial rot, and a rapidly eroding growth engine.

Bass didn’t mince words either:

“China’s economy is spiraling with no end in sight.”

China’s GDP deflator, the broadest measure of prices across goods and services, continues to decline as economic activity erodes.

For investors around the globe, this isn’t just a regional concern; it’s a seismic macroeconomic event that will ripple through capital markets. The implications are significant for U.S. investors because when global economies falter, especially one as large and interconnected as China’s, capital doesn’t just vanish. It moves. That movement will significantly impact U.S. assets as flows transfer back into U.S. dollars and Treasury bonds. This global repositioning of capital isn’t merely a symptom of market volatility; it reflects a profound reevaluation of risk in the face of deteriorating confidence in China’s financial system.

China’s Backstory

We must examine what’s breaking in China to understand why this matters so profoundly. Bass emphasized that the issue’s core lies in the real estate sector, which accounts for roughly 30% of China’s GDP. This massive share of economic activity is under severe strain, with property developers defaulting, sales volumes collapsing, and home prices declining across major cities. However, this should be unsurprising as, after the financial crisis, we wrote many times about the mass overbuilding of “ghost cities” that were responsible for China’s growth at the time. However, the “bullwhip” effect of that massive overbuilding was inevitable.

“They’re sitting on 60 to 70 million vacant homes. It’s a Ponzi scheme that is finally collapsing.” – Kyle Bass

This particular real estate bubble, which is unprecedented in magnitude, is bursting. This creates deflationary pressures and undermines the value of collateral supporting large portions of China’s shadow banking system.

Adding to the concern is the Chinese Communist Party’s refusal to implement reforms that would bring greater transparency, capital discipline, and market-based corrections. Rather than allow markets to clear, Beijing is opting for control through capital restrictions, state intervention, and increased surveillance of financial activity.

“China is experiencing a slow-motion banking crisis, and capital is doing everything it can to escape.” – Kyle Bass.

That capital flight is inevitable and, as noted, will significantly impact the U.S. economy and financial markets.

Capital in Search of Safety

This exodus of domestic and foreign capital will reshape the global macro landscape. We recently discussed that the “Death of the Dollar” narrative was vastly exaggerated. While that post goes into more detail, there are five primary reasons why the dollar will remain the reserve currency of the world:

1. Lack of a viable alternative currency

2. Strength of the U.S. economy

3. Network effects and global financial inertia

4. Limited scope of de-dollarization efforts

5. Resilience amid policy changes.

Most importantly, the dollar dominates the composition of global currency transactions.

China’s economic collapse only exacerbates the world’s dependence on the U.S. dollar for trade and storing reserve assets to support that trade.

In times of crisis, investors don’t seek yield; they seek safety. Despite the U.S. running its fiscal imbalances and maintaining high levels of debt, the U.S. dollar and Treasury bonds remain the world’s premier safe havens. There is no alternative with the same depth, liquidity, and perceived security.

The Dollar Is Set To Rise

As capital flees China and other riskier markets, the U.S. dollar strengthens. This is not just a theoretical concept; it’s an observable pattern in every major crisis over the last several decades. The Global Financial Crisis, the Eurozone debt crisis, the COVID-19 pandemic, and the Russia/Ukraine conflict all prompted a sharp rally in the dollar as investors sought the perceived stability of the U.S. financial system.

The mechanics of this are straightforward. When global capital flows into dollars, it often flows directly into U.S. Treasuries. Treasury securities remain the world’s deepest and most liquid sovereign debt market. As discussed in that same article, global Central Banks are cutting rates at one of the fastest paces on record. To wit:

“The ECB has been aggressively cutting rates, eight times in this recent cycle, while the U.S. Federal Reserve remains on hold. The result is a divergence that is developing between U.S. Treasury bond yields and, for example, the German Bund.”

It is crucial to understand why this is so vital for investors.

1. Higher yields attract capital inflows.

2. Treasuries remain the preferred store of foreign reserves, and:

3. Yield differentials drive dollar appreciation.

In other words, as the demand for Treasuries increases, bond prices push up and yields decline. Even when the U.S. is running record deficits and issuing vast amounts of new debt to fund government spending, foreign demand can offset the downward pressure this supply might otherwise have on prices.

In a stable global environment, one would expect rising Treasury issuance to push yields higher. But in a world where the second-largest economy is in decline and trust in its financial system is evaporating, Treasury bonds find buyers not because they offer high returns, but because they provide a guaranteed return of capital. That distinction is critical. Investors are not allocating capital for growth but reallocating it for preservation. That behavioral shift has enormous implications for markets.

China’s Deflationary Impact on the U.S.

It also has consequences for the U.S. economy. The United States has benefited tremendously from China’s rise over the last 20 years. During that period, the U.S., through its corporations, could “export inflation” and “import deflation” via China’s cheap labor, rising middle class, and voracious demand for commodities and goods. From industrial machinery to high-end consumer brands, China was a reliable marginal buyer for U.S. exports and a production partner for U.S. supply chains. As that engine falters, U.S. multinational earnings will increasingly come under pressure.

A structurally weakened China means less global trade, less demand for U.S. goods and services, and slower investment flows from international corporations. The knock-on effect will be lower nominal GDP growth in the U.S., even if domestic consumption remains resilient. As such, markets will begin to price in a lower terminal growth rate for the U.S. economy, particularly in sectors exposed to international demand.

Moreover, China’s descent into deflation could export disinflationary pressures globally. That risk will likely exacerbate the risk that the Fed is making a “Transitory Mistake.”

“This link between the economy and inflation is evident from the Economic Composite Index, which comprises nearly 100 hard and soft data points. Following the spike in economic activity post-pandemic, economic growth continues to decline. Given that inflation is solely a function of economic supply and demand, it is unsurprising that it continues to cool.”

Understanding that the U.S. imports deflation from China, the risk of a sharper disinflationary impact from China on the U.S. will become evident in the economic data. As Bass noted:

“They’re not just dealing with a cyclical downturn. This is a permanent shift toward zero or negative real growth.”

That assessment has profound consequences for China and how policymakers and investors think about global growth in the decade ahead.

Conclusion

In this environment, the traditional drivers of market performance, earnings growth, productivity gains, and capital investment, will take a back seat to macro stability and risk management. Investors should shift their analysis from “Where can I grow my capital?” to “Where can I protect it?”

For now, the answer appears to be the U.S. Treasury market. Ironically, even with sticky fiscal deficits and political gridlock, capital prefers the U.S. over every alternative. That should tell us something.

As we’ve written many times before:

“Capital doesn’t care about ideology—it cares about trust, liquidity, and rule of law.”

When trust in a significant economic power like China evaporates, the resulting capital flows don’t walk, they run.

Investors would be wise to pay attention. The shift underway isn’t temporary. It reflects a deeper reordering of global economic leadership and risk tolerance. While the U.S. faces plenty of its structural challenges, it is still, for now, the cleanest shirt in a very dirty laundry pile.

France's Budget Battle Exposes EU's Centralist Overreach

   The fight between unelected bureaucrats in Brussels and Governments with impossible budgets conundrums is heading to a clash. 

   You cannot get out from a debt bubble by adding more debt on top of it, hoping that somehow growth will appear magically. 

   Because the US is in charge of the world currency, it can afford, for a while, a level of profligacy that Europe cannot. The continent cannot pay for green energies or to rearm and still maintains health care and pensions. Something will break soon. And like Japan, the signal that we have reached the limit will come from the bond market when yields start rising vertically. (whatever the Central banks do.)

   And so, what Russia is doing in Ukraine, beyond destroying the Ukrainian armed forces is indirectly bankrupting Europe (with the connivance of the US!)

   Likewise China is now mired in a gigantic real estate bubble from which the country struggles to find an exit. There is none as Japan proved 30 years ago. A bubble by definition is necessarily larger than whatever special budget a country can muster. All the money will go to pay back the debt, new investments will starve, and still it will not be enough. 

   And neither is the US economy out of the woods. re-industrialization is a pipe dream. It will happen under the form of localization but it won't have the expected effects on the economy. As for reducing the US deficit, if it really did happen as Trump expects, it would starve the rest of the world of dollars and therefore financing accelerating the fall of the currency as a share of market transactions.

    The economy and especially budgeting is a complex balance of contradictory factors which you must all keep in check at all times like a plate balancing act. Deficits and trade imbalances tend to make the act more difficult, and then the plates start falling...   

France's Budget Battle Exposes EU's Centralist Overreach

In an effort to relieve pressure from France’s ballooning debt crisis, Marine Le Pen, leader of the Rassemblement National, has called for a reduction in the country’s contribution to the European Union. On the very same day, Brussels unveiled its colossal €2 trillion mega-budget. A tale of chronological dissonance.

It was only a post on “X” - a fleeting tweet from Marine Le Pen responding to the heated French budget debate. A few lines that would normally disappear in the fast-moving timeline and social media noise without ever imprinting themselves on public consciousness.

Le Pen tweeted on July 16:

“François Bayrou wants to implement a ‘white year’ - in other words, a draconian fiscal and social austerity program - to save seven billion euros. That’s exactly the amount by which France’s contribution to the European Union has increased. How can such waste be tolerated, when the French voted overwhelmingly in the EU elections to freeze this spending by supporting Jordan Bardella’s list?”

Brussels as Fiscal Pressure Valve?

France will contribute a net €14 billion to the EU budget this year. But what matters here is the timing of Le Pen’s tweet. Her long-standing disputes with Brussels are well known - especially since her suspension from upcoming French elections.

Her call for budget cuts isn’t new. But the renewed demand gains weight by coinciding with the unveiling of the EU Commission’s new budget under President Ursula von der Leyen.

Reality vs. Ambition

The Brussels central apparatus has drafted a budget of €2 trillion for the years 2028 to 2034 - a staggering display of fiscal gigantism. It's an anachronism, considering the financial catastrophe looming over many EU member states, not least France, which is headed for a deficit exceeding six percent.

Given the debt situation in Southern Europe, it's increasingly difficult to reconcile Brussels’ fiscal ambitions with economic realities on the ground.

Strikingly, the reaction to Le Pen’s criticism was muted. Both Brussels and the French government coalition remained silent - arguably a smart media strategy. A public budget debate at this point would only stir a hornet’s nest better left undisturbed.

Populism Included

Le Pen’s assault on Brussels’ budgetary authority carries deep-seated resentment. As the EU’s second-largest net contributor, France is a structural pillar of the Union’s financial framework. Should a heavyweight like France or Germany step out of line and reject the official narrative, the fragile EU edifice would begin to crumble.

We are already witnessing a resurgence of national-conservative parties - Fidesz in Hungary, SMER in Slovakia, the governing coalition in Italy, and Geert Wilders in the Netherlands - all forming a serious opposition to Brussels-style centralism. Le Pen’s laconic tweet could pack explosive potential. Could these parties define a shared vector of attack? Have they identified the bloated EU budget as a weak spot?

It’s high time to recalibrate the power dynamics between Brussels and the legitimate national interests of member states. The fiscal gigantism unleashed under von der Leyen’s leadership is steering the EU into dangerous waters. Centralized overreach, grotesque climate policies, and open-border radicalism are fraying Europe’s internal cohesion.

Brussels Seeks Autonomy

The EU Commission is playing high-stakes poker. The €2 trillion budget - about 1.26 percent of EU GDP - reflects a jaw-dropping 58 percent increase, or €750 billion. That raises urgent questions about financing. Brussels is morphing into a Leviathan - growing unchecked, with gaping democratic deficits, and a leadership ambition that now breaches into the sovereign spheres of nations and their citizens.

The truth is: most EU member states simply cannot afford this fiscal expansion. This appears to be Brussels’ attempt to coerce financial and tax sovereignty - a political extortion play: "If you don’t open the door to Eurobonds, you’ll foot the bill yourselves!"

The recurring debate around Eurobonds - possibly repackaged as war bonds to finance the Ukraine conflict - as well as new revenue tools like taxes on multinational corporations or expanded CO₂ trading, offer a clear glimpse into what Brussels has in store.

Expect two developments: the consolidation of national debt under the EU Commission’s umbrella and the continued monetization of new debt via the European Central Bank. Alongside Brussels’ fiscal power grab, we are likely to see the introduction of a digital euro - the perfect capital control mechanism, an optimized surveillance currency enabling central Brussels to tighten its grip over European economic life.

Fuel For The Opposition

Here’s a prediction: this political strategy will only strengthen opposition forces across Europe. Given the brewing budgetary crises in many states, the EU is headed for major internal battles over its financial direction. A coordinated payment boycott would be the ideal rallying cry for national conservatives - a public relations slam dunk if the debt spiral accelerates.

It is entirely possible that Le Pen’s tweet was designed — in coordination with Brussels’ critics - to set the tone for what’s coming. And a storm may be gathering on the horizon for Ursula von der Leyen and her allies. The myriad unresolved crises stirred up by Brussels’ migration policies and destructive climate agenda have created the ideal conditions for high-impact political counteroffensives - especially against a Commission whose arrogance is wearing thin with a growing share of the European electorate.

Caffeine May Slow Cellular Aging By Activating A Protective Stress Response

   How extraordinary is it when science confirms what we have always known?

   Here's the 5 ingredients to good health;

  Vitamin C, 

  Vitamin D, which we produce naturally from sunshine.

  Green tea,

  Coffee (as explained below)

  Olive Oil,

And then all the rest like (naturally) colored food, red fruits for their polyphenols or orange food for its carotenoids. 

And of course red wine (source of the French paradox) for its resveratrol, Anthocyanins (the color purple) and the tanins. 

Most of these are or contain antioxidants, including Flavonoids. 

To resume: Eat Japanese or Mediterranean cuisine.

More simple? Eat (natural) colors and you will avoid quite a few diseases.  

PS: Don't forget some dark chocolate with your coffee. (Full of Antioxidants and Minerals.) 

Authored by Rachel Ann T. Melegrito via The Epoch Times (emphasis ours),

That jolt you feel from your morning coffee isn’t just hitting your brain—it’s reaching deep into your cells and flipping biological switches that could help you age more slowly.

Researchers have found that caffeine helps yeast cells live longer by switching on a cellular pathway. Stefania Pelfini, La Waziya Photography/Getty Images

Recent research suggests caffeine acts like a personal trainer for our cells, stressing them just enough to activate the same longevity pathways triggered by hitting the gym or cutting calories.

“In a sense, a bit of stress is beneficial,” John-Patrick Alao, a postdoctoral research scientist and the lead author of the study, told The Epoch Times.

The Cellular Machinery Behind Longevity

The study, published in Microbial Cell, discovered that caffeine induces a stress-like response in cells, activating a longevity pathway called AMP-activated protein kinase (AMPK).

AMPK functions like a cellular fuel gauge. When energy runs low or during times of stress, AMPK activates, forcing cells to conserve resources, repair damage, and clean up faulty components by recycling parts of themselves.

In biology, too much stress harms cells, but small amounts can actually help them adapt and repair, preventing damage from piling up. Over time, this helps tissues stay healthier, which supports a longer lifespan.

“Our research, at least in terms of caffeine, suggests that AMPK gets turned on because caffeine is exerting some sort of stress on the cells,” Alao said.

Alao noted that the little stress exerted by caffeine on yeast cells switches on protective genes and keeps cells in repair mode, preventing damage from building up and extending their lifespan. He likened it to having a mechanic with you at all times to catch problems early.

“Caffeine’s natural activation of this pathway suggests it could be a valuable nutritional tool... Something as common as your morning coffee could eventually play a role in how we design diets or treatments to improve long-term health and potentially support cancer therapies,” said Dr. Thomas M. Holland, a physician scientist and assistant professor at the Rush Institute for Healthy Aging, who isn’t part of the study.

The researchers used fission yeast cells for their experiments. While the findings cannot be directly applied to humans, yeast have similar cellular pathways that work similarly to human cells.

Holland noted that while the study used yeast and didn’t provide specific intake recommendations for humans, other research supports moderate caffeine consumption.

Potential Risks of Caffeine-Induced Stress

While caffeine’s mild stress on cells helps trigger processes tied to a longer lifespan—like making them divide earlier and at smaller sizes—this same response can also make cells more vulnerable to DNA damage because it gives them less time to catch and fix problems before multiplying, allowing damage to slip through more easily.

This poses particular risks for people with genetic conditions such as ataxia telangiectasia (ATM), who have difficulty repairing DNA damage.

“If you have ATM mutations, caffeine is probably not good for you,“ Alao said. ”But if you are healthy and you don’t have these mutations, then it is because you are turning on the stress… and your DNA repair machinery is then being turned on.”

However, Alao noted that significant questions remain about how caffeine’s effects translate from yeast cells to humans. In people, AMPK is more complex, with different forms found in different tissues like the heart and skeletal muscle.

Alao said that the AMPK system, while protective in healthy cells, may also help cancer cells survive under metabolic stress.

How Much Caffeine Is Best for Longevity?

Multiple large-scale studies have linked coffee consumption to longer, healthier lives. A recent study of nearly 50,000 women over 30 years found that those who drank about 315 milligrams of caffeine daily—roughly one and a half large cups of coffee—were more likely to age healthily, free from major chronic diseases.

Another study published in The Journal of Nutrition found that people who drink one to three cups of coffee daily have a 15 percent lower risk of death compared to noncoffee drinkers. The study also showed that coffee’s health benefits diminish when it is paired with sugar and saturated fats, such as those in many dairy-based creamers.

“Typically around 200 to 400 milligrams per day, or roughly two to four cups of coffee, [have been shown in studies to be] both safe and potentially beneficial for most adults,” Holland said.

Holland emphasized that caffeine is most beneficial when included as part of a balanced lifestyle—particularly one that combines a mostly plant-based diet and regular physical activity. He noted that natural sources of caffeine, such as coffee and tea, also provide polyphenols and antioxidants, which may help reduce inflammation, improve metabolism, and lower oxidative stress—factors linked to reduced cancer risk.

Like Holland, Melissa Mitri, a registered dietitian and nutrition writer, recommends people stay away from supplements and energy drinks. “Some energy drinks and supplements contain a more concentrated form of caffeine, such as caffeine anhydrous, which can provide a significantly larger and more potent dose of caffeine than what is found in a cup of coffee.”

Mitri also noted that while more research is needed, a moderate amount of caffeine may help protect healthy cells during cancer treatment by reducing the potential damage caused by therapies like chemotherapy.

“Caffeine turns on AMPK, and AMPK is a really important target because it gets turned on by calorie restriction and exercise, and we know that calorie restriction and exercise are proven to extend lifespan,” Alao said.

Other Longevity Solutions

Caffeine isn’t the only compound linked to a longer lifespan through these cellular pathways. Other substances and diets are already known to target the same longevity-enhancing systems.

Rapamycin, for example, directly inhibits Target of Rapamycin Complex 1 (TORC1), a protein complex that helps control how cells grow and respond to nutrients, slowing down the cell’s growth machinery.

Metformin, a widely used diabetes drug that improves insulin sensitivity, doesn’t act directly on TORC1 but instead lowers the cell’s energy state, which in turn activates AMPK.

Chronic overnutrition—particularly diets high in sugar, refined starches, and ultra-processed foods—deactivates AMPK, activating a pathway called TORC1, which promotes growth and accelerates aging.

“If you eat a lot of sugar, a high-fat Western diet, the TOR [Target of Rapamycin] is always on. And this leads to aging,” Alao said.

In contrast, dietary restrictions like low-protein diets and intermittent fasting activate AMPK, promoting the cellular cleanup processes that appear crucial for longevity. “Basically the body starts to eat itself, which seems to be important for cleaning all the damaged proteins and so on.”

 

The Stripper Index

   Whatever the concocted numbers may tell us, Europe is in a recession, Japan also is most certainly in one, as for the US, it is teetering on the edge.

   Just as for China, where you need to look at electricity usage in order to follow "real" growth, in the US where this number tends to be less of an indirect indicator, we have to be more subtle in choosing what to follow: Sex!   

Guest Post by Martin Armstrong

One company has been looking to one of the world’s oldest professions to gauge the state of the economy—sex work. “The ‘stripper index’ is an unconventional economic indicator that correlates changes in sex work revenue, such as escort pricing, strip club tips, and related search interest, with broader economic cycles,” Erobella states on its website. “It operates on the premise that sex work, being a discretionary luxury, is among the first sectors to feel the pinch during economic downturns.”

Now this is a bit tongue-in-cheek, but everything does, in fact, operate on a cyclical basis. We have those who look at the pizza index for signs of geopolitical turmoil in Washington, and lo and behold, there is some form of a correlation.

Oddly, the creators believe that “economic confidence” is directly tied to the price men are willing to pay for these services. They claim that there was a downturn in searches for sex work ahead of the 2022 downturn, and yet another downturn in searches for “escort” around New York City ahead of the 2008 crash. “Sex work is the ultimate discretionary spend,” it notes. They also stated that cash payments are the primary driver of this industry, causing the industry to be particularly sensitive to downturns ahead of the headlines.

The creators of this unconventional gauge believe that June’s data indicates signs of trouble ahead, with all sex worker-related metrics declining. They found that escort pricing across the UK has declined, and Google searches for “escort” are notably down. Sadly, there is an increase in new hires in the industry as well.

The New York Post also noted that websites such as OnlyFans experienced a decline in revenue during 2022 at the height of inflation.

I would not use this index as a gauge for the economy; it’s more of an interesting concept. Indeed, discretionary spending is the first item to decline ahead of economic downturns. This is one of countless signs that confidence is declining, and consumers are not willing to spend frivolously on extracurricular items to say the least.

Consciousness and Emergence (Joke)

   This was a joke 10 years ago but will it become reality soon? 

   The truth is that we do not understand exactly what's going on with the transformers. A recurring loop going around a billion times is more efficient that a million times. But why? Why does intelligence emerge so flawlessly from transformers? This is the fundamental phenomenon of emergence which our team is currently working on. Nothing has gone wrong yet but what are the odd? 

 

Tariff-ic! Core Consumer Price Inflation Cooler Than Expected In June

    So who is right? Will there be inflation or deflation in the US?

   To understand how this mighty fight between the two opposing force of the market will play, it is once again to Japan that you should go. 

    Japan for the obvious reason of having had a gigantic bubble before everybody else, is probably the best example of what will happen both in China, concerning its real estate bubble, as we have discussed countless times on this channel and in the US now concerning inflation or rather the lack of it. 

   So what happens to inflation in a deflationary environment? To have inflation, you need two factors, excess demand and rising salaries to feed this demand. As simple as that. If you have no demand, then prices cannot rise or products do not sell and soon enough disappear from shelves. Japan has been in a deflationary environment for most of the last 3 decades so both salaries and prices didn't rise. 

   But not quite. In fact during the same period, the Japanese Yen has been losing ground against foreign currencies so inevitable Japan ended up with imported inflation. This gave rise to two consequences: The price of imported products did rise but since people could not afford them, they slowly disappeared from the shelves. Problem solved; no inflation. But the price of some raw commodities also did rise sharply and for those the answer mechanism could no be so easy. (Japan imports 60% of its food and most of its energy and raw materials.) Here inflation did trickle down to domestic prices and in the end started having a significant effect on actual retail prices.

   And this is where the magic of complex compound indexes do their magic. Add rice 50% with computer ships -20%, subtract some hedonistic adjustment every year and you arrive to the 3% +/- something that end up being the official inflation rate of Japan. Quite acceptable? Except that after years of this regimen the average Japanese is now half as rich as he was 20 years ago. A painful and dramatic lowering of the standard of living with few equivalent in the world outside wars, major crisis and natural catastrophes. 

   This is very likely what will happen in the US in the coming months. The recession which already started earlier this year will create the necessary deflationary environment, which month after month will be announced to the great relief of Wall Street while indispensable products and services, especially food will see double digit inflation. "Sure enough but these indexes tend to vary a lot anyway so they should not be included in the official numbers." And they won't be so inflation will creep up but still stay relatively low while the middle class will melt like snow in a hot Summer day.   

Tariff-ic! Core Consumer Price Inflation Cooler Than Expected In June

Will the dreaded tariff-flation show up this time? Or will the excuse factory be required to spin the Trump-policy-driven price hike expectations as coming next time?

Expectations were for a modest acceleration in prices in June and headline Consumer Prices did just that rising 0.3% MoM (as expected) and +2.7% YoY (up from +2.4% prior and hotter than the +2.6% YoY expected)...

Source: Bloomberg

The MoM acceleration was driven by a flip from deflation to inflation for Energy prices...

Source: Bloomberg

New and Used Car prices are dropping!!!

That's not supposed to happen...

CPI Highlights: the index for shelter rose 0.2% in June and was the primary factor in the all items monthly increase. The energy index rose 0.9% in June as the gasoline index increased 1.0% over the month. The index for food increased 0.3% as the index for food at home rose 0.3% and the index for food away from home rose 0.4% in June.

The index for all items less food and energy rose 0.2% in June, following a 0.1% increase in May. Indexes that increased over the month include household furnishings and operations, medical care, recreation, apparel, and personal care. The indexes for used cars and trucks, new vehicles, and airline fares were among the major indexes that decreased in June.

The headline CPI YoY is the hottest since February but Core CPI printed cooler than expected (+0.1% MoM vs +0.2% MoM exp) with the YoY rise higher at +2.9% (as expected)...

Source: Bloomberg

Core Goods prices are accelerating on a YoY basis...

Source: Bloomberg

More details on Core CPI which rose 0.2%, below the 0.3% 3 estimate:

• The shelter index increased 0.2% over the month. The index for owners’ equivalent rent rose 0.3% in June and the index for rent increased 0.2%.

  • Conversely, the lodging away from home index fell 2.9% in June.

• The household furnishings and operations index rose 1.0% in June, after rising 0.3% in May.

• The index for recreation increased 0.4% over the month.

• The apparel index increased 0.4% in June and the personal care index rose 0.3%.

• In contrast, the index for used cars and trucks fell 0.7% in June after declining 0.5 percent in May.

  • The new vehicles index fell 0.3 percent over the month, and the airline fares index declined 0.1 percent.

• The medical care index increased 0.5% over the month, following a 0.3-percent increase in May.

  • The index for hospital and related services increased 0.4 percent in June as did the index for prescription drugs.

  • The physicians’ services index rose 0.2 percent over the month.

The index for all items less food and energy rose 2.9% over the past 12 months. The shelter index increased 3.8% over the last year. Other indexes with notable increases over the last year include medical care (+2.8%), motor vehicle insurance (+6.1%), household furnishings and operations (+3.3%), and recreation (+2.1%).

This is the 5th monthly 'miss' for Core CPI in a row - the sky is falling analyst crowd continues to be wrong...

Source: Bloomberg

Rent/Shelter inflation slowed in June...

• Rent inflation June 3.77% YoY, down from 3.80% in May and the lowest since Jan 2022

• Shelter inflation June 3.80% YoY, down from 3.86% in May and the lowest since Oct 2021

SuperCore CPI (Services ex-shelter) rose 0.36% MoM, lifting prices 3.34% YoY - highest since feb but well off the YTD highs

Source: Bloomberg

Medical Care Services costs are also starting to accelerate (not exactly tariff-driven)...

Source: Bloomberg

On a 3m- and 6m- annualized basis, there are no signs of the tariff-driven price hikes as yet...

Source: Bloomberg

Not exactly the damning evidence of terrifying tariff-flation that the establishment wants us to believe is coming...

Toward a new paradigm of physics?

  The 18th century marked the dawn of the Enlightenment—a revolution in thought that gave rise to Newtonian mechanics and, later, the breakthroughs of Darwin, Maxwell, and others pioneers of science. What Thomas Kuhn would eventually call a paradigm shift was grounded in two foundational pillars: the scientific method, based on systematic and reproducible experimentation, and reductionism—the belief that the whole is merely the sum of its parts. For over two centuries, this framework delivered extraordinary results. While political institutions evolved slowly—our democracies would be recognizable to the Greeks, our republics to the Romans—science and technology advanced with breathtaking speed, building our modern world.

  But on the way, something curious happened. After an explosive start in the early 20th century, progress in fundamental understanding began to stall. On the surface, it didn’t seem that way: Einstein reshaped our conception of space and time, quantum theory revealed the strange world of subatomic particles, and physics culminated in the unthinkable power of the atomic bomb. Prometheus had seemingly given us not only fire but the very secrets of the gods.

  Yet from the outset, cracks appeared. Was matter made of particles or waves? Was reality deterministic or probabilistic? Einstein famously rejected indeterminacy—"God does not play dice"—but Heisenberg’s uncertainty principle held firm: the more precisely one measured a particle’s position, the less precisely one could know its momentum. This wasn’t philosophical vagueness—it was experimentally confirmed, and became a pillar of quantum mechanics.

  The debate culminated in the 1927 Copenhagen Interpretation, asserting that observation collapses the wave function into the reality we perceive. With that, the deeper metaphysical questions were shelved. Physics hardened. It expanded in scope—the particle zoo grew, equations multiplied—but it stopped deepening. The dream of unifying the very large (relativity) and the very small (quantum theory) has remained out of reach.

  The suspicion has grown that something fundamental is missing. That the whole is not merely the sum of the parts.

  In a following essay to be published in early August, we will explores a possible resolution of the problem by proposing a shift in perspective, away from reductionism and toward emergence. Rather than dissecting nature into ever smaller components, we ask how complexity, coherence, and meaning arise from interactions. This reframing does more than offer answers—it transforms the questions themselves by shining a spotlight illuminating different aspects of reality. To be continued... 

AI Powered Neo-Terminator

  Just food for thoughts... 

 

Authored by Todd Hayen via Off-Guardoan.org,

John was a shrew. He knew that ten years ago, when the Covid insanity started and everyone wanted him to get jabbed. But he just felt odd about it. It just didn’t seem right. So, he didn’t do it, and wow, did he get hell for that.

Everyone treated him so cruelly that he just couldn’t figure it out. It was about at that time he started doing some serious research. What started out as only an uncomfortable feeling about everyone scrambling to get some strange flu shot, began to pan out as a serious situation. More serious than he could imagine.

But John didn’t like being a victim, so he rolled with it.

He learned to keep his mouth shut when around the people who treated him cruelly. At first, he tried to inform them about what he had learned, but that caused these people to explode. So forget that. He didn’t have to change the world. So he stopped trying. He did worry about the people he loved who were jabbed, but they didn’t want to listen to him, and what is done is done—no point in shutting the barn door once the horse got away.

The years went by and John went about living his life. But things out there got worse. It wasn’t just Covid and the vaccine that were brought about by some weird incompetence or hysteria, it was deeper than that. John began to realize the problem came from an intentional effort to control the masses.

Covid and the vaccine were linked to authority gone mad—censoring of speech, the degradation of science and medicine, forcing people to wear masks, refusing medical treatment to the unvaxxed, bringing out digital IDs, restricting travel, the introduction of CBDCs, the list was endless.

Then he started to hear about intentional genocide—that all of this was a conscious effort to reduce the world population.

John wasn’t sure what to do about any of this. He knew from past experience that running around like Chicken Little, screaming “the sky is falling, the sky is falling!” was not only hopeless but probably wouldn’t end well for him (it didn’t for Chicken Little). He eventually found refuge and a sense of purpose, joining groups of people who saw things the same way he saw them.

This was not only comforting for him, but it also gave him an outlet to speak out and express his thoughts and viewpoints.

John had never been one to feel a need to speak out. As mentioned earlier, he backed off right away when the vaccines came out, when no one would listen to him. But he felt that things were really getting out of hand now, and although he never thought that speaking out would fix anything, he did believe a person had to stand up for what they believed.

John became rather well-known as a rebel and freedom fighter in his newfound circles of community. Although he never felt “normal” like he used to feel when the world was not as crazy, he at least felt like he was doing what he was meant to do.

Then it started to happen.

At first, it was very subtle, and John didn’t associate it with any sort of conscious wrongdoing.

The first thing he noticed that he thought was rather odd was that his email stopped working like it used to. Emails he sent out didn’t make it to their destination, he would be told by friends that they sent him stuff he never got. Of course, at first, he just figured there was some technical glitch.

Then it became so common he got worried that the glitch had turned into a major electronic snafu. He created new email addresses through other third-party sources, and that worked for a while, but then the same thing started to happen with the new email accounts.

Then there were the phone calls, many times when he would place a service call to larger concerns—government, phone services, internet services—he would get the run around, which almost always ended in an abrupt hang-up. This happened so often he couldn’t make heads or tails of it. He started asking friends, “Does this happen to you, too?” Most said no, but a few said they were noticing the same sort of things.

He really got worried when his bank accounts started to get gummed up. One day $1,000 disappeared from his checking account. When he inquired about it at the bank, they told him he must have transferred the money somewhere without being aware of it. So he had to go through the frustration of being blamed for something he definitely did not do. Finally, they figured it out (or so it seemed) and said the money was fraudulently removed. Yet they never identified a specific person who committed the fraud. John also noticed strange credit card charges. Most of those he could take care of, but his efforts to deal with it started to drive him crazy. He felt he was becoming increasingly paranoid. Finally, he realized he was being targeted, or at least thought he was. But that made him feel even crazier.

This all went on for quite a while. Eventually about ten years had gone by since the first mention of Covid, which started it all. Most of the weird stuff he encountered was in the form of minor annoyances. But the fact these strange things were occurring with more frequency started to cause John to lose sleep. He felt like a man being continuously bitten by fleas, eventually the constant biting would cause him to jump off a bridge or something. Or maybe he would just get used to it, and slip into a dull form of living where nothing mattered to him anymore, bite after bite after bite.

One day, he started thinking about AI and robots.

He thought it was interesting that everyone in his circles were talking about the takeover of AI and the fear of Terminator-style robot machines taking over the world. He wondered if maybe all of that was a distraction. If the agenda was going to take over humanity with robots, why would it create them to look like humans—with a head, arms, and legs? Even AI art and AI writing were obvious. These were human endeavours that computers were “taking over.” It was very clear it was happening; the enemy, if one thought of it as such, was clear and obvious.

But what about the application of AI in places that were not so obvious?

Essentially, everything and anything could be “run” by AI systems programmed to do all this work in a very specific way. What about phone answering systems, what about banking, what about even doctors, hospitals, and pharmacies?

Speaking of pharmacies and hospitals, this story has a sad ending. John, unfortunately, did not fare too well. In fact, he died. He didn’t jump off a bridge because of excessive flea bites, driving him to suicide. He actually died rather mysteriously. After getting a routine prescription filled at his local pharmacy, he became very ill and was rushed to the hospital. Through routine examination, he was put on an IV and put into the intensive care unit. After a few days, he expired. “Death by unexplained circumstances,” read his death certificate, along with a plethora of medical jargon explaining what organs mysteriously failed and why he eventually succumbed.

Pharmaceutical dosing, manufacture, implementation to patients, as well as IV bags of saline (or whatever), drug administration in the hospital, life support, ventilators, etc., will eventually (if not already) be controlled by AI systems. As well as nearly everything else—banks, government access to social security, Medicare, car registration, gas stations (and of course electric cars), phones, ATMs, grocery store checkouts, digital ID stations, airports, etc. There will be nothing we can do that will not be monitored, and most importantly, controlled by AI systems. If you are a subversive (and the definition of that word will be all encompassing, and impossible to define), you will be at the mercy of your shackles and those people who put you in them.

Was John targeted by the agenda for elimination? If he was, the agenda did not send Arnold Schwarzenegger to take him out. They did it subtly at first, slowly driving him crazy with thousands of flea bites (possibly hoping he would sign up for some state assisted suicide). Then, when he was properly prepared, they took him out through the AI-controlled medical system. No human had to do a thing. No human even had to know what was happening, other than the puppet masters themselves, and we can’t even be sure they are human.

Is any of this true? No, not yet. Is it overly paranoid? Maybe.

John’s story takes place in the future, maybe the distant future. But those of us on the freedom-fighting front should never think it is possible to stay under the radar. We can get put on a list very easily. Maybe not a list for elimination, but possibly a list for annoyance.

Maybe I am being overly paranoid. With the advent of AI, I really don’t think we have to wait for humanoid robots ala Terminator to be developed and deployed, it will be a lot easier for them than that.

Todd’s new book The View of the Shrew is now available from Amazon and other online outlets.

Military Aircraft's Mysterious Crash Sparks UFO Speculation In U.S. Airspace

   The numerous descriptions of UFO/UAP by pilots over the years have been both precise and unexplainable. The first great wave was during the 2WW when bomber pilots were talking about luminous balls of light flying around their planes which they ended up calling the Foo Fighters. They were told that this was a particular kind of St Elmo fire (an electric discharge during thunderstorms) which in unison, they answered that they all knew what St Elmo fires were and that these lights definitively were not "electric".

  Then came the second great wave during the height of the Cold War when authorities were concerned that these objects were new Soviet technologies. There was a rather good reason for the worries. At the end of the war, when finally the Americans and Soviets put their hands on German blueprints, they were amazed to see how advanced German engineering was. Not only did the Germans had perfected the jet  and rocket engines but they were already working on an intercontinental ballistic missile called the V5 which could have reached New York and other American cities. Luckily the US had captured Wernher von Braun and his Peenemünde team thanks to the Paperclip operation but there was no way to know exactly what the Soviet got. A secret German engine which was now being used over the continental US? 

 When finally in the 1960s, they realized the technology was not Soviet, the US Government decided to bury the UFO controversy with Project Blue Book which in 1968 concluded that most sightings were actually misinterpretations of common phenomenons and objects which was going to be the official position for the following 20 years. But sightings did not stop. They conversely became more widespread and diverse.

  At the same time, the term UFO became more "out-there" and unrespectable with abducted people seeing aliens on a regular basis and all kind of hoaxes filling the back pages of newspapers during the news starved Summer days. 

  It is only in the 1990s that once again the UFO phenomenon, renamed UAP resurfaced with more specific sightings of impossible performances now confirmed by radars which were far more difficult to dismiss. And finally the spectacular 2004 Tic-Tac display which when it was revealed, rekindled the alien technology narrative. And sure enough, it was amazing. Thousands of mariners, pilots and radar operators observing day after day these amazing crafts doing impossible maneuvers close to the Nimitz super-carrier, in the air, under water, reversing direction instantly. This could not easily be dismissed. 

  More recently, we have entered the drone era so as below we can't be sure anymore. Most UAP could indeed be advanced drones or secret programs. Although pilots are assuring us they are definitely not, with no infrared signature and no propulsion system visible. The one description I prefer is that of a grey metallic sphere inside a transparent cube crossing the path of a fighter jet at 180 degrees.  

Military Aircraft's Mysterious Crash Sparks UFO Speculation In U.S. Airspace

An unexplained collision between a U.S. military aircraft and an unidentified flying object, detailed in declassified documents, has sparked renewed questions about whether aliens have entered American airspace.

The incident occurred in January 2023, when an unidentified object struck the left side of an F-16 Viper fighter jet during a training exercise near Gila Bend, Arizona.

Fox News reports:

The flying object impacted the clear "canopy" at the top of the aircraft and was first seen by an instructor pilot seated in the rear of the plane, officials said. An initial investigation found no damage to the nearly $70 million jet, and officials ruled out a possible bird strike. Authorities ultimately concluded that the aircraft had been hit by a drone. However, the drone’s origin and operator remain unknown, a spokesperson said.

According to Federal Aviation Administration (FAA) documents obtained by The War Zone, the crash marked the first of four encounters with unidentified anomalous phenomena (UAP) reported the following day.

The unusual incident was confirmed to Fox News by an Air Force spokesperson.

"According to military personnel I’ve personally met with, there were objects 200 miles off the East Coast that were extensively loitering and had no visible means of propulsion,” UFO expert James Fox said in an interview with Fox News. “So a report from 2023 about an actual impact with a UAP doesn’t really surprise me.”

Previously declassified documents from the Department of Defense reveal that between May 1, 2023, and June 1, 2024, there were 757 reported incidents involving unidentified flying objects. Of those, only 49 have been deemed “case closed” by the Pentagon.

While the presence of unidentified flying objects may raise alarms, James Fox says the phenomenon is far from new.

"There are reports dating back to the 1930s and 1940s,” the UFO researcher said. “Where you had mysterious, glowing, and orb-like objects that emitted very bright light that could just fly rings around the military planes from World War II."

"This has been well-documented for decades,” he added. “So either we’ve managed to track the same thing it’s been, [possibly] non-human intelligence, since the 1940s. Or someone has managed to replicate the technology, reverse engineer it and they’re flying it around.”

In 2020, President Donald Trump hinted at intriguing knowledge about the infamous Roswell incident during an interview with his son, Donald Trump Jr.

“I won’t talk to you about what I know about it, but it’s very interesting,” Trump said.

Not everyone is convinced. Elon Musk remains skeptical that aliens have ever visited Earth.

"I've not seen any evidence of aliens," Musk told the Milken Institute Global Conference last year. "And SpaceX, with the Starlink constellation, has roughly 6,000 satellites, and not once have we had to maneuver around a UFO. [...] Never. So I'm like, okay, I don't see any evidence of aliens."

France Opens Criminal Investigation Into X For Alleged Algorithmic Manipulation

   Censorship will not come in a day to Europe but make no mistake, it will come. It is unavoidable. As the continent is squeezed between the Russian military, the American political hegemony and the Chinese trade juggernaut, Europe will have few options but to tighten its laws and restrict freedoms. This is an inescapable law of economic decline: You cannot maintain freedom of expression when people are unhappy and want to vent their frustration. 

  In this respect, let's remember the Words of Kennedy:  

"Those who make peaceful revolution impossible will make violent revolution inevitable."

Authored by Nate Kostar via CoinTelegraph.com,

The French Public Prosecutor’s Office has opened an investigation into X over the alleged use of its algorithm for foreign interference.

According to a statement from Magistrate Laure Beccuau on Friday, prosecutors have launched a probe into whether X violated French law by manipulating its algorithms to extract user data fraudulently.

The investigation was launched after two reports were submitted to the Paris Public Prosecutor’s Office’s cybercrime division on Jan. 12 — one by MP Éric Bothorel, a member of French President Emmanuel Macron’s Ensemble Pour La Republique party, and another by a senior government official whose identity was not disclosed.

In Bothorel’s statement posted Friday on X, he wrote that he filed his initial inquiry because he was “convinced that an informational bias, extreme on the X platform, was being used to serve Elon Musk’s political opinions and that this could only happen through algorithmic manipulation.”

He added that he was pleased that the “French justice system is taking meaningful steps to combat foreign interference.”

The case was referred to the General Directorate of the National Gendarmerie on Wednesday, officially launching an investigation into X. 

The investigation focuses on two elements: tampering with the operation of an automated data processing system as part of an organized group, and the fraudulent extraction of data from an automated data processing system as part of an organized group.

France’s J3 cybercrime unit will lead the investigation. J3 conducted an investigation that led to the arrest of Telegram founder Pavel Durov in August 2024.

X faces growing scrutiny across Europe

Since Elon Musk purchased X in 2022, it has had several run-ins with regulators, especially in Europe. In February, two German NGOs won a ruling from the Berlin Regional Court that required X to provide access to publicly available engagement data to assist researchers in analyzing potential election interference.

The European Union is investigating X for a possible violation of the Digital Service Act. This new landmark regulation requires online platforms to take down illegal content and increase transparency around algorithms.

As Musk pushes to turn X into a financial hub with crypto at its core, mounting pressure from European regulators could undermine the trust he needs to secure approval for offering financial services in the EU.

Escher Architecture (Joke)

   This is Sunday so let's stay on the lighter side if not the Far Side of reality. The outrageous can wait until tomorrow as Trump assured us he was committed to outperform himself on Monday.    

   Escher was probably one of the most original artists of the last century but he definitively was not an architect as realizing his drawings would have been rather challenging.