A Critique of the BBC Documentary: Unvaccinated

  With this interesting article, you won't learn much about Covid-19 that you did not already know but it is conversely extremely well documented to understand how propaganda works.

 Propaganda is de facto not a haphazard process but a well built articulation of different elements: Arguments without counter arguments, ideas without explanation (follow the science), character assassination to weaken one side of the debate, silence or outright cut of good points which do not fit the narrative...

 The truth is that all this is not new. These techniques have been honed over half a century of trial and error since the second World War, on radio first, television later, and more recently the Internet. The good thing is that we understand much better how it works. The bad thing is that it is far more sophisticated and potent than it used to be. The ugly one is that it is more and more used for nefarious purposes. 

A Critique of the BBC Documentary: Unvaccinated

By Nicholas Creed republished via The Daily Bell

I watched it so you don’t have to, although should you choose to, it can be watched on Odysee.com here.

This author’s mind has been blown.

The narrator introduces the documentary as “an eye opening investigation led by Professor Hannah Fry.” Well, it certainly was eye opening, it made me want to gouge my eyes out. Incredibly uncomfortable viewing.

Let’s get into it.

It starts off with a montage of a few of the (unjected) participants and summarises their concerns or ‘hesitancy’.

Chanelle is pregnant, worried about how the injection could affect her unborn child.

 

Naomi is worried about future fertility issues if she were to take the COVID-19 experimental gene therapy injection.

 

 

Mark is for freedom of choice over coercion.

 

 

Luca is immediately portrayed as a ‘conspiracy theorist’ and they hone in on his concerns over 5G and microchips being in the jabby-jabs. It’s a twisted attempt to discredit him and tar him with the tiresome ‘conspiracy theorist’ brush.

Fry wants to get to the heart of the issue (I think that is myocarditis, isn’t it?).

Vicky proudly didn't follow restrictions during lockdowns etc, she is a “normal person who doesn’t want to take part in a trial.”

Vicky, I salute you.

A psychologist named Clarissa (I think) is brought in to tell Fry that the ‘vax hesitancy’ is about a crisis of confidence. Advises Fry to find the root cause of the so called hesitancy. She bleats that if one person changes their mind it can have a positive viral effect. Yay!

Fry smugly declares they have conducted the largest ever survey in the UK on vax hesitancy with a study sample of a mere 2,500 humans, with 600 unjected. Biased much? Is this total sample size even representative for the UK with an estimated population of 68,623,948 humans?

Fry cites the main concern of the unjected being the adverse reaction of blood clots. Apparently 50% of those surveyed cited this.

She then tells the group that 1 in 10 people who take the gene therapy will experience headaches, and segues into ‘a study from the US’ (source??) whereby 76% of participants experienced adverse reactions / symptoms, as a placebo effect, because of their expectation to receive such an effect, even though they did not receive the medication.

Hmmmm.

We have our first strawman argument on placebo groups and psycho-somatic symptoms being generated from some non-cited study in the US.

The pregnant lady Chanelle wants more information, camera pans to Fry whose face lights up with a beaming smile.

Fry:

I am not trying to trick you, not trying to catch you out. Let’s see the gold standard evidence.

Ah, that old chestnut.

 

Nazarin Veronica spends her free time doing outreach to warn people of the dangers of the COVID-19 injections. What a wonderful Woman.

 

Nazarin cites the recent Pfizer report with 9 pages of data on adverse reactions. Fry says it's terrifying but moves on to her next strawman argument as a coincidence theorist.

The adverse reaction could take place afterwards coincidentally. Just imagine, a doctor answers the phone (when he’s about to inject a child with the jab), then the little boy has a fit, but he didn’t even get jabbed.

Wait, what?

Fry:

There are indeed some rare side effects such as Anaphylaxis, Myocarditis, and blood clots. Blood clots linked to AstraZeneca. Bells palsy & Guillain-Barre syndrome flagged as potential rare side effects. There are only 29 more cases per million.

 

We move onto Ethan who is fearful of side effects. He wants to be a Father one day.

Fry brings on a GP called Dr. Aurora, who says that all research done shows no impact on fertility in male or female patients. Interestingly, she speaks very quickly and mumbled, as if to betray her inner belief and knowledge of what is true.

The doctor then flips the script and tells young Ethan that it is in fact COVID that can cause infertility. Sources? Data? Trust the science™.

*I have reams of information to counter all these bold pronouncements. I will link to a previous article where I covered this in detail, as well as further recommended reading at the end of this piece.

---

 

The focus here is to review the documentary and call things out as bizarrely, propagandised, and gas-lit as they are. I will link to a few sources as necessary throughout.

Naomi is brought on for a one-to-one with Fry. Naomi had long COVID, and is still suffering the after effects.

GP Dr. Aurora says there have been reports of irregularities in menstrual cycles following Women having the COVID-19 injection. Again she speaks very fast and mumbles this part. Then her speech pattern slows down with emphatically clear pronunciation, to tell Naomi that this side effect is temporary; everything will be fine by the second or third menstrual cycle.

Would it not have been opportune and honourable to the hippocratic oath, to responsibly explain why the menstrual cycle irregularities happen in the first place as a common side effect after taking the injection??

Fry confidently states that Ethan & Naomi are open to Dr. Aurora's advice…

Nazarin explains how her friend had a stroke and three suspected heart attacks shortly after taking the injection. Nazarin shows Fry a video on her phone of her friend having a seizure.

Fry, seemingly devoid of empathy and switching into narrative protectionism mode, casually asks Nazarin:

How can you be sure that was the vax?

Nazarin replies that her friend had been healthy then days later she began experiencing seizures & paralysis, and she is so young, this is not possible (that it was unrelated to the injection).

Nazarin:

You know in your heart, that’s what caused it.

Fry looks to the left, pauses, thinking, says there is not enough evidence to say so, bites her nails…

 

Fry:

We know the vaxeeens aren't without risk, but I want to help the group to think about the chance of side effects versus the disease itself. As humans we are most affected by stories. We need to step outside of our emotional engagement with topics.

Interesting. I recall how the UK Government’s SAGE team wrote in black and white how to manipulate people through their emotions during the early part of the scamdemic.

Fry focuses on Myocarditis. Tells the group the (incidence rate) numbers post-injection, recommends them to “anchor your mind, visualise”….Then we move onto jelly bean roulette. This is an actual game she makes the participants play. Treating them like infants.

 

The master jellybean represents the risk of you getting Myocarditis if you have the injection. Round one of the joyful little game had a higher chance of them ‘getting’ Myocarditis, but Fry says that:

Round two is a much more attractive proposition!

Cue Fry swings a few sackfuls of jellybeans onto the table. She adds 33,000 beans to convey the correct level of risk (being 1 in 33,000).

You are playing a game of jellybean roulette!

Nazarin points out that other jelly beans could be (representing) other side effects. Fry interjects that Myocarditis is the most common severe side effect. Oh. That serves as a strange yet perhaps unintentionally stated fact. Oops. Contradicted her goals and objectives of the documentary much?

*Nazarin is consistently talked over and interrupted when she is calmly presenting facts on adverse reactions; allegedly a lot of her talking points were edited out by the BBC. More on that later.

Fry says the most at risk are 18-29 yr olds! Apparently only 1 in 33,000.

Fry tells Nazarin that she is tapped into stories of people negatively affected / vax injured, due to the communities she is surrounded by. Very distasteful and dismissive of Fry.

Vicky walks out of the room and says the jellybean roulette game is insulting, people are dying and injured, this is not a serious debate.

Vicky, I concur.

Fry acknowledges vax deaths mostly linked to AstraZeneca blood clots. *Note this is the second time that Fry has openly called out and demonised the AZ injection…almost seems perceptible at driving the great unwashed towards the mRNA poison instead?

Nah, that would be conspiratorial thinking, wouldn’t it?

Fry announces that up to may 2021, the number of blood clots were in the 10s not 100s (check MHRA, links at bottom of article for truth).

---

 

The group is taken to meet scientists who trialed and tested the injections.

Fry tells the camera how it is frustrating that Vicky and Nazarin won't join as they are “too committed to their beliefs, getting in the way of others in the group wanting to ask questions and find out more information.”

Those damn pesky anti-vaxxers!

Luca is ridculed questioned by Fry on his belief that there could be a microchip in the vax. Fry says 5% adults believe this. Luca cites himself being banned from Facebook. Luca thinks the vax is for depopulation.

Mike Yeadon and Reiner Fuellmich of the corona investigative committe would certainly agree with Luca on the depopulation agenda.

They arrive to see the scientists and Fry asks Luca to wear a mask upon entering the building; he says and that he’s exempt. Well done Luca.

 

Professor Finn on far right.

 

A masked Professor Finn says the vax is very good at stopping you from getting seriously ill, not good at stopping you passing it on.

They look at samples with antibody colour changes comparing injected / unjected (but no mention of antibody dependent enhancement or immune imprinting).

Ethan wants to know the risk of someone who has had COVID twice compared to someone who has been vaxd.

Prof. Finn stutters:

Um, we think that the immunity you get is more consistent and usually stronger if you've had the vax than if you’ve had the infection. We find that people who have had the vax and get infected have a strong immune response.

Alas, no mention of natural immunity.

 

Sat outside on the grass, Professor Finn is now unmasked. COVID theatre is situational specific, don’t you know?

Prof. Finn:

The way (the trials were done) was not by missing out any steps we normally do.

Okay Finny, let me pause you there.

The clinical trials are still ongoing. Although several countries issued "emergency use authorization" allowing these companies to begin distributing these vaccines to the public, the stage III trials of the vaccines are ongoing, with several of the planned "endpoints" for the data not being collected for 24 months after injection.

As a result, as even the UK's own "Information for UK Healthcare Professionals" pamphlet regarding Pfizer's vaccine points out:

Animal reproductive toxicity studies have not been completed.

 

Ethan asks what is in the vax. Prof. Fin doesn’t answer the question, just says they “got the code from china to make the spike protein”…

Prof. Fin says Moderna made a fortune knocking out the vax batches, calls it a bonanza, but proudly says that:

Capitalism is the way we want to go!

Oh my days, I could not make this stuff up.

*Update - revelation that Professor Finn works at Bristol University the Pfizer vaccine control center for excellence.

No conflict of interest at all there then?

Now we go to the St. George's vaccine institute in London. Chanelle wishes to find out how the injection affects fertility.

Prof. Khalil assuredly states:

What we know for sure is the vax does not cause miscarriage.

Did she really say that on camera?!

The most recent new information that has come to light on how the injections affect pregnant mothers-to-be and their fetuses, is detailed in an analysis of the United State’s Vaccine Adverse Event Reporting system (VAERS), by Dr. James Thorp - covered by the Epoch Times here.

Extract from aforementioned Epoch Times article.

Back to the documentary.

The Professor goes on:

We know it does not cause still-birth, we have good safety data. The vax is useful for you and your baby, could reduce risk of stillbirth by 15%.

I don’t think the Professor and I are looking at the same data here…

*Update - Professor Khalil has been revealed to be the Principal Investigator of the Pfizer COVID vaccine in pregnancy trial:

So much for all these “independent experts” then.

Fry asks Nazarin & Vicky about why they did not come to the vax institute. Nazarin cites that she's done her research on both sides and is well informed.

Fry patronises Vicky and tells her that she gets the impression that Vicky is very 'passionate' about what's happened (to the countless vax-injured and deceased).

When Vicky asks Fry if this is an approved vax, Fry evades the question, mumbles about scientists running different versions of different vaccines. Fry references phase 4 trials are normal after a jab rollout.

Fry brings up a fake NHS vaccine checklist someone made for distribution with warnings about adverse reactions built into the checklist. She says it is all a hoax.

Then we’re taken through a few more surveys…

 

 The UK public’s perception of the COVID vax development process.

We also learn from Fry that 30% of the surveyed respondents have little trust in the mainstream media, including Sky, ITV, and the BBC.

Nice.

The survey sample size is 1,894 (664 unjected) in relation to COVID perceptions.

 

 Meet Will Moy.

Will Moy from Full Fact meets the group. Fry cites social media posts being taken down. Moy brings out a ridiculously irrelevant fact check of golf reducing chance of early death.

The next fact check is about the Ukraine / Russia conflict being a hoax. This is a weird segue.

Fry wants to talk about Ukraine to Luca and basically intimidate and mock him about his social media posts. Nazarin intervenes and is clearly angered, stating how irrelevant this is, rightly points out that the topic of focus here is the COVID-19 injection.

Nazarin says she wants an equal discussion about both sides of the story. Will Moy blew my mind with this little gem:

Let's be careful about ‘equal’, there is very good evidence that the vaccines are (*drum roll please*) SAFE AND EFFECTIVE"

When the topic of free speech crops up, Moy ‘profoundly’ says:

In a world where you believe in free speech, telling someone they are wrong when they are wrong, is the right response.

 

Those fact checkers are like patron saints, unsung heroes I tell thee.

In closing, all the participants are asked by Fry if they would now take the injection, and they all say NO!

Nazarin is a beautiful human being and her response is measured, thought provoking and compassionate:

It is unethical to risk young people’s lives to protect those of older people, it is not moral.

Indeed.

When in the history of humanity have we ever before sacrificed the health of our children on the altar of the ‘greater good’, in order to protect the elderly and the vulnerable?

It is the opinion of this author that the countless lies and omissions of the truth throughout this documentary have sealed the fate of the BBC.

Roll on Nuremberg 2.0 trials.

Nazarin has since been tweeting about her experience filming the documentary and the posts are rather illuminating.

Theater Opening in the Balkans.

  The Balkans may look like a sideshow but it's not as we learned 100 years ago.

  Superpowers just do not declare wars on each others. They realize the danger and do their best to mitigate the risk. So if you want to generate a war, you need to proceed methodically. Very much like a fire! inflame some straw in a corner, add some twigs above, let simmer for a while and when it's red enough throw in the big logs.

Theater Opening

Guest Post by Raúl Ilargi Meijer

If you’re Chinese or Russian, and you watch videos of the top three “most powerful” people in the US, Biden, Kamala and Pelosi, what do you think? You think all three are incoherent and should not be anywhere near any decisive, let alone nuclear, lever.

If you’re anybody anywhere, and you look at the top three “most powerful” people in the world, Xi, Putin and Biden, what do you think? You think two of them have got it together (nothing to do with you liking them or not), and one can’t even read coherently from a teleprompter.

Nowhere near half of Americans understand these two things to be true, but probably some 90% of Chinese and Russians do, as well as a vast majority of people in other non-US/NATO/EU countries.

Another threesome: Sergei Lavrov (Russia), Tony Blinken (US) and Liz Truss (UK) are all foreign ministers (or Secretaries of State, give the beast a name). Who would you trust to represent your own interests best in the field of diplomacy? It’s not even a question, is it? If the US or UK had a Lavrov, he would be their man (he would most likely decline). But they don’t. The US has a nobody (they have lots of those!) in the role, and the UK has someone with zero qualifications who dreams of getting the top job.

The world outside of the G7 or G20 (give the wheel a spin) sees this happening. Is it any wonder they clamor to be part of BRICS? The “collective west” is fast finishing off itself, and yes, you’re right, that is a dangerous moment. It’s also why it very much looks like the “collective west” is trying to open a second theater of war in Europe. One that looks a lot like the one they opened in Ukraine. And the EU, to its utter shame, does nothing to prevent this from happening – on its “own” soil!.

I know, there’s Crazy Nancy on her way to Taipei as well as we speak, we’ll get to that yet. Imagine: you’re 80-odd years old, and you want your legacy to be WWIII. Not your grandchildren, but live nukes. Just imagine that.

Kosovo’s unilateral secession from Serbia was recognized by the “main Western powers” in 2008. But not China, Russia, or the UN!. Not too long after Bill Clinton’s NATO bombed the heebeejeebees out of former Yugoslavia in 1990. Just because they could. Today, the US -and NATO- try to use a tiny sliver of former Yugoslavia to ignite a major fire in Europe, a second fire besides Ukraine.

Kosovo is the size of half a postage stamp, only two US states are smaller, Rhode Island and Delaware. 1.8 million people live there, it’s like one NYC borough. But you can use the historic hatred to rekindle the flames. Right, Blinken? Well, turns out there are still some Serbs living in Kosovo, because that’s where they grew up.

The brilliant Kosovo PM now has the fantastic idea to start a fight with these Serbs, over the fact that their cars have Serb license plates and they themselves have Serb IDs, a whole 14(!) years later. Yeah, that’s worth a fight, obviously.

So America’s “top diplomat” Blinken invited Kosovo president Osmani and PM Albin Kurti to DC last week.

 

 

 

 

I’ll let some people other than me explain this to you. First, political analyst Alexandar Pavic:

In Kosovo As In Ukraine, The Same Western ‘Invisible Hand’ Foments Conflict

In addition to the conflict in Ukraine, Europe is now faced with the prospect of renewed conflict in Kosovo, Serbia’s breakaway province (officially named Kosovo and Metohija according to the Serbian constitution). Kosovo’s unilateral secession was recognized by the main Western powers in 2008. This came nine years after NATO’s attack on Serbia and the Federal Republic of Yugoslavia, after which NATO forces occupied the province and helped install an ethnic Albanian-led government dominated by former members of the Kosovo Liberation Army terrorist organization.

The current crisis was triggered by Kosovo’s ethnic Albanian Prime Minister, Albin Kurti, who initially wanted to force the majority Serb population in the north of the region to accept Kosovan license plates and ID papers starting from August 1, and to ban entry to the province or issue temporary papers to travelers with Serbian-issued plates and documents.

Kurti attempted a similar stunt in September 2021, triggering a crisis where local Serbs in northern Kosovo organized roadblocks and Kosovo police reportedly beat up and intimidated Serb civilians, while the authorities in Belgrade put the Serbian military on high alert and ordered overflights by fighter planes over the administrative border between Serbia proper and Kosovo. The EU eventually brokered a temporary agreement, pending a final deal that was supposed to have been reached by April 2022, under EU auspices. However, nothing has come of that.

From Kosovo to Ukraine, it seems there’s a pattern regarding agreements in which Western powers have a hand. Since the start of this year’s special military operation in Ukraine, Russian officials have repeated time and again that the West had never pressed Kiev to fulfill its part of the 2015 Minsk 2 peace agreement, intended to end Kiev’s standoff with the Donbass republics. Recently, former Ukrainian president Pyotr Poroshenko openly admitted that Ukraine never intended to fulfill the agreement but was merely buying time until it could build up an army capable of overrunning Donbass.

The situation with Kosovo is not much different. The EU brokered an agreement between Pristina and Belgrade in April 2013, the so-called Brussels Agreement, by which Serbia was supposed to dismantle its “parallel” police and judicial structures in Kosovo and convince the Kosovo Serbs to accept integration into the Kosovo police and legal system, without recognizing the territory’s independence. And the Belgrade authorities did this, despite a large public outcry over the move.

 

However, there was a second part to the agreement, by which Pristina was obligated to form an Association of Serb Municipalities, with substantial local powers and ties to Serbia proper. The Albanian part of the Brussels Agreement has not been fulfilled to the present day. Or, as Serbian President Aleksandar Vucic noted on July 31, that 3,390 days have passed since the Brussels Agreement was signed, and still no sign of the Association.

As in the case of Ukraine, the collective West has put absolutely zero pressure on the side it supports to fulfill its part of a signed international agreement. And again, as in the case of Ukraine, this has encouraged Pristina to take an increasingly belligerent stance, which may very well lead to a more serious conflict.

There’s an additional ingredient to the Kosovo mix, thanks to the Ukraine conflict. Namely, the Serbs – both in Serbia and in Bosnia and Herzegovina – stand practically alone among European peoples in refusing to join Western sanctions against Russia, and in consistently demonstrating open support for Russia’s special military operation in Ukraine. As a result, the government in Belgrade has been under constant, increasing pressure by the main Western capitals, as well as the EU and NATO, to change its policy and join the West’s collective economic suicide.

Since Belgrade has proven to be a tough nut for the West to diplomatically crack when it comes to opposing Russia, it’s not at all far-fetched to imagine that the Kosovo Albanians just might be seen by the West as a useful tool by which to additionally turn the screws on Belgrade. In the same cynical way in which the unfortunate Ukrainians are being used to pressure and weaken Russia.

 

 

 

Next, from RT, about Richard Grenell. No love lost on my part about him, but he did negotiate a bunch of peace deals, and knows the territory much better than Blinken.

Trump’s Kosovo Envoy Slams US Over Crisis

Richard Grenell, who negotiated a Kosovo-Serbia deal under the Trump administration after a turn in charge of the US intelligence community, blamed the “reckless” prime minister in Pristina for the renewed tensions with Belgrade on Sunday and slammed the State Department for enabling him. “What’s happening in the Balkans isn’t Russia. Whoever says this to you is trying to manipulate you,” Grenell tweeted on Sunday evening. “This is about Albin Kurti trying once again to give it [to] Serbia. He is living in the past.”

“The people of Kosovo want peace and jobs, Albin. Stop picking fights,” Grenell added. Serbian military was placed on high alert and local Serbs put up roadblocks earlier in the day, after Kosovo police showed up at two administrative crossings with Serbia, intending to enforce Kurti’s decision to confiscate Serbian license plates and documents. This would have effectively cut off the remaining Serbs living in the north of the breakaway province.

According to Grenell, this was all about Kurti “making unilateral moves to reject Serbian IDs and license plates inside Kosovo,” which he called “unnecessary.” Describing the PM a “far left radical and experienced fascist,” Grenell further called his actions “foolish” and “reckless,” and urged Serbian leaders to “not take the bait.” “Even the Albanians know Kurti is the problem,”Grenell tweeted. He also blamed Secretary of State Antony Blinken, who met with Kurti and Kosovo president Vjosa Osmani earlier in the week.

US President Joe Biden has “ignored the Balkans,” the envoy added, pointing out that he had negotiated multiple agreements between Kosovo and Serbia under President Donald Trump, trying to overcome the conflict through economic cooperation. Grenell also accused the EU of orchestrating war crimes charges against Kosovo President Hashim Thaci to punish him for working with Trump – resulting in Kurti and Osmani taking power.

And then Fyodor Lukyanov, the editor-in-chief of Russia in Global Affairs, chairman of the Presidium of the Council on Foreign and Defense Policy, and research director of the Valdai International Discussion Club.

Why Are Serbia And Kosovo On The Brink Of War Again?

Tensions between Belgrade and Pristina occur regularly, as a result of the fact that the Kosovo issue has not been resolved since 1999, when the province de facto gained independence after the US-led NATO campaign against the former Yugoslavia. However, this time there is a risk of more or less routine friction escalating into a dangerous conflict, because the context has changed dramatically.

The problem of Kosovo was solved at the end of the twentieth century in strict accordance with the then dominant approach, and in the seeming absence of an alternative. Disputes in most of Europe (ie. outside the former USSR) were settled according to the EU’s ideas of fairness, and where they could not be worked out amicably, pressure was exerted on those who rebelled, up to the use of military force (primarily American, as always).

[..] it was the EU that regulated the processes taking place locally, and, in general, this setup was taken for granted. Moreover, other powers which have been traditionally active and important in the Balkans – Russia and Turkey – indicated their presence (sometimes quite clearly), but did not pretend to have a decisive voice in the way things were arranged. This framework also defined the room to maneuver for the countries of the region, including those who were most loudly dissatisfied, like Serbia.

Now two main circumstances have changed. First, the EU is in such a vulnerable state that it is not ready to take full responsibility for the extremely complex political situation in its immediate periphery. It cannot promise membership, and more precisely – even if such a pledge were made, it doesn’t guarantee anything.

The EU’s management of the central Balkan problems – in Bosnia and Kosovo – has not led to the desired outcome over the past quarter of a century. Thus, it’s all the less likely that it will work out now. Because the second circumstance is that Russia and the West (the EU plus the US and NATO) are in a state of acute confrontation.

As a result, there is no reason to expect Moscow’s assistance in resolving the situation (be it Kosovo or Bosnia). Right now, the West’s favorite practice of “selective interaction” (we work together with Russia where we need it, we refuse to engage on other issues) can no longer be applied. There will be no cooperation: Russia and the West will be on opposite sides of the barricades everywhere, no matter the issue at hand. We are in a systemic cold war. And this reality can greatly influence what will happen in the Balkans.

The question is to what extent regional actors have retained their passion for showdown, revenge or expansion. There are suspicions that this zeal has been exhausted and emasculated. But if it still burns, then external forces will enter the fray this time, supporting opposing sides.

Blinken et al, which very much includes his EU counterparts, see the past struggles in the Balkans as something they can reignite at their convenience today. The initial boundaries are simple. Russia will come to the aid of Serbia. Kosovo will appeal to Albania. And then to NATO. So the idea is you got this hot cauldron, with 5-6-15 nations, and NATO can do whatever it wants in there.

But NATO has no chance in Ukraine, and it doesn’t have one in Kosovo. But it can ship billions worth of weapons in there by Raytheon. Problem I see with this genius plan is that Russia saw it coming from lightyears away. And that is the same issue as the difference between Lavrov and Blinken: they may have the same job title, but there’s no comparison.

Europe Has Lost The Energy War

  The coming months will be extremely painful for Europe since what the continent could not understand with negotiations will have to be learned the hard way through direct experience.

 The not-so-green "green energy" policies of Europe are mostly nonsense which will dramatically impoverish most countries since you will have to pay twice or more for everything. Once to get it the green way, with solar panels and wind turbines made in China, then a second time for a back-up when there is no sun or wind (think of a cold snowy day in Germany in January), with coal, oil or gas from Russia.  

 You can of course import industrial products from outside China and energy from outside Russia, it will just cost you more, rendering your economy even weaker in the process. The pain will be almost imperceptible in Norway which has ample oil and gas resources to pay for renewables and unbearable for Greece which has nothing. Everyone else will be somewhere in-between.

 This by itself would be a harbinger of thought times ahead. Now, add a proxy war over Ukraine with Russia and over Taiwan with China and you have a true recipe for disaster. What we think of who's right and who's wrong has no importance whatsoever. What counts in the end is not that Carthage was right, it is that Rome won the Punic wars. Europe spent four centuries teaching the hard lesson of might makes right to the world, it is now on the verge of learning it back! 

 The ancient Chinese were right: Progress is cyclic, not linear!

Authored by Thomas Fazi via UnHerd.com,

After a decade of financial austerity, is Europe now on the brink of a new age of energy austerity? The city of Hanover has recently introduced strict energy-saving rules that include cutting off the hot water in public buildings, swimming pools, sports halls and gyms, banning mobile air conditioners, fan heaters or radiators, switching off public fountains, and stopping illuminating major buildings such as the town hall at night.

Meanwhile, several countries across Europe are considering dimming or switching off public lights, and even adopting “energy curfews”, with early closures for businesses and public offices. And more drastic measures are under consideration — including gas rationing for energy-intensive industries such as steel and agriculture.

These measures are part of an EU-wide Gas Demand Reduction Plan, ominously titled Save Gas for a Safe Winter, to reduce gas use in Europe by 15% until next spring. Among the proposals is a provision that officials in Brussels impose fines for non-compliance if they decide the crisis is escalating dangerously.

All of this comes amid growing fears that dwindling Russian gas supplies may plunge Europe into an energy crisis this winter. Overall, Russian gas exports to the EU are at about a third of last year’s levels, falling steadily since the invasion of Ukraine. While several European countries have been reducing their Russian gas imports, Russia itself has been reducing gas flows to Europe through Nord Stream 1, the continent’s biggest pipeline, citing mainly technical issues. Just the other day, citing equipment repair, Russia announced yet another reduction in the amount of natural gas flowing through Nord Stream 1, which is now operating at only 20% capacity.

This has caused natural gas spot prices to surge to levels not seen since early March; they are now almost 10 times higher than they were two years ago. In most countries, electricity prices have risen accordingly. Soaring energy prices are already fuelling record inflation — currently close to 9% and rising in the EU — squeezing people’s spending power, plunging thousands into poverty, and placing a huge burden on industry.

This is especially true for Germany, which is almost entirely dependent on Russian gas imports. Indeed, the country’s industrial production has been contracting for over three months. Astonishingly, 16% of industrial German companies have reduced production or partially stopped their activities due to rising energy prices. This helps explain why last month Germany became the first country to escalate its warning over gas supplies to the “alert level”.

The combined effect of rising prices, lagging demand (both internally and abroad, as China goes back into lockdown) and falling production and investment is already causing economic growth on the continent to grind to a halt. While institutions such as the European Commission and the IMF, despite significant downward revisions, still predict real GDP in the EU to be around 2.5% this year, several analysts consider even these far-from-rosy predictions to be overly optimistic. Carsten Brzeski, Chief Eurozone Economist at ING bank, for example, foresees a recession at the end of the year as high prices sap purchasing power.

To make matters worse, the ECB’s recent decision to raise interest rates will do little or nothing to curb inflation caused by supply-side factors, but will almost certainly further depress economic activity, making it harder for states to mobilise resources needed to cushion the effects of the energy crisis. And as for the ECB’s recently launched Transmission Protection Instrument (TPI), aimed at helping countries in financial distress, it may only be activated for those countries judged to be “fiscally sustainable” (a questionable concept in itself), even though the current polycrisis is inevitably bound to put a strain on the public finances of European countries.

Furthermore, even though the EU has sensibly — for once! — proposed to keep the EU’s fiscal rules suspended for another year, several countries, led by Germany, have announced their intention to embrace austerity once again. “For Germany, it’s clear: we will not make use of the general escape clause,” said the German Finance Minister Christian Lindner, arguing that the priority now had to be fighting inflation. “We will return to the debt brake. We have to stop the addiction to ever more indebtedness.” For this, he added, “we have to get out of our expansionary fiscal policies, and out of the debts, so that the central bank has the space to fight inflation with its means”.

In other words, Germany seems intent on once again plunging the continent even deeper into recession through utterly self-defeating austerity, just as it did in the wake of the financial crisis. Europe is already heading for a stagflationary scenario — a situation where high inflation is associated with low or negative growth. Austerity would simply make a bad situation even worse.

If things are bad now, however, it goes without saying that a further decrease in Russian gas flows, which still account for 40% of the EU’s gas imports — not to mention a full stop — would have utterly catastrophic consequences, especially if that were to happen during the winter, when demand for gas it at its highest. Energy, after all, is literally the lifeblood of the economy. It’s what keeps our houses lit and warm (or cool), and our cars, industries, supermarkets and electronic gadgets running. Without it, civilisation literally comes to a halt.

This is why if Europe’s energy supplies are unable to meet demand, the consequences would be almost unimaginable: factories would be forced to close, workers would be laid off, and households forced to restrict electricity and heating use to certain hours. It would be nothing short of societal meltdown. Germany’s Foreign Minister Annalena Baerbock recently admitted that shortages of natural gas this winter “could spark popular uprisings”. Think riots, looting, martial law, possibly even toppled governments.

In an attempt to stave off this doomsday scenario, the EU has adopted a regulation providing that underground gas storage on member states’ territory must be filled to at least 80% of their capacity by the end of October (it’s currently at 67%). That, however, depends on stable flows in the following months. Moreover, even if the 80% target is reached, that still wouldn’t be enough to get countries through the whole winter without continuous supplies of more gas. While at current capacity, the EU would have just enough gas to get to the end of November (assuming an October 1 start to winter).

Moreover, storage levels and storage capacity vary greatly in the EU. Some countries, such as Spain, Portugal, Bulgaria and Croatia, would run out by December even at full capacity (while others are lagging seriously behind in filling the tanks up). Germany remains the most exposed. Despite having by far the largest storage tanks in Europe, its demand for gas is equally large and its tanks only hold 108 days of consumption — full tanks would run dry on February 16 and they are currently only 67% full, which would be emptied in December if Russia turned off the gas tomorrow.

Overall, it’s highly unlikely that Europe would survive a full cut-off of Russian gas. While some countries have successfully managed to partially replace Russian gas imports with alternative, albeit more expensive, sources of gas — such as liquefied natural gas, or LNG — others, first and foremost Germany, remain heavily dependent on Russian imports.

So ultimately we have little choice but to hope in Putin’s good will if we want to make it through the winter. Yet Russia’s leader is not the only one to blame for our current predicament. If today we find ourselves on the brink of disaster, and already facing massive economic hardship, the responsibility falls squarely on the shoulders of European leaders. Put to one side the fact that waging “total economic and financial war” on a nuclear-armed regional power that shares more than 2,000 kilometres of borders with Europe could hardly be considered a sensible move, it was glaringly obvious that cutting off Europe-Russia economic relations was going to hurt the former much more than the latter, given Europe’s dependency on Russian gas. Indeed, European leaders indirectly admitted this when they excluded Russian oil and gas exports from the sanctions regime. There’s something pathologically infantile about the behaviour of European leaders: they enjoy strutting around on the world stage and making grandiose speeches about “democracy standing up to autocracy”, and yet they don’t seem to be cognisant of the real-world consequences of their words.

The question of Russian supplies is a perfect case in point. At the start of the conflict, the EU, which before the war got some 40% of its gas from Russia, announced its intention to reduce those gas imports by two-thirds by the end of the year and phase out Russian gas entirely by 2027. Indeed, for the past six months European leaders have been boasting about weaning themselves off it in order to “hit Putin where it hurts the most”. And yet today they moan about inflation and rising prices — what did they think would happen? — and were gripped by panic and moral outrage when Gazprom announced that it would be slashing its gas flows to Europe.

Is Russia weaponising the flow of gas in its tug of war with Europe? Of course it is. But Europeans started this game. Or perhaps they thought they could engage in a unilateral energy war with Russia, at their own pace and conditions (which is why they excluded Russian oil and gas exports from the sanctions regime), without the other side firing some shots back at them. To make matters even more grotesque, not only has the “gas war” not weakened Russia — it appears to have actually strengthened it, by helping Russia massively increase its inflow of foreign reserves on the back of rising energy prices.

For all the barbarity of Putin’s war, the livelihoods of millions of Europeans have already been sacrificed on the altar of the gross incompetence of European leaders. And the livelihoods of millions more are at risk. They’re right about one thing, though: the future of Europe depends on the struggle between democracy and autocracy — between us, the people, and them, the autocrats.

Rabobank: If Pelosi Now Chickens Out And Doesn't Go To Taiwan, China Will Have Proven It Controls Access To It

  It is indeed amazing to see history happening in real time. First time for our generation? 

 Both the US and China are now trapped by their own rhetoric as explained by Michael Every below. 

 Will Nancy Pelosi dare go? Will the Chinese army dare shoot her plane down? Damned if you do, damned if you don't. Zero sum game where the only winning play is ... not to play!

 

By Michael Every of Rabobank

Of all the things I expected to be doing on a Sunday night as I caught up with the world after a break from markets, watching Twitter playing ‘Where’s Nancy?’ was not one of them. Yet thousands tracked the US Speaker of the House of Representatives heading off as she tweeted, “I'm leading a Congressional delegation to the Indo-Pacific to reaffirm America’s unshakeable commitment to our allies & friends in the region. In Singapore, Malaysia, South Korea & Japan, we’ll hold high-level meetings to discuss how we can further our shared interests & values.” The rumor is she may also appear in Taiwan later this week.

This Nancy Drew Mystery is all over Bloomberg and the Financial Times because China has made clear it will respond if Pelosi does ‘go there’. Indeed, just days after Xi told President Biden that on Taiwan, “those who play with fire will get burned”, the Global Times says "Don't say we didn't warn you!", and the PLA says they are “Preparing for war,” to public approval. Moreover, a missive titled ‘Red Clouds of War Looming Over Taiwan’ doing the rounds among expats in Taiwan (by a De Groot, but not the one in my team), stresses:

“It’s what we’ve all been dreading for years, a massive military attack by an aggressive, repressive, authoritarian China. One minute, we’re peacefully going about our business in this free, democratic, and basically humane country, Taiwan. The next, life is turned upside down. Bombs are dropped and missiles launched, causing death and destruction to people, property – and maybe the entire Taiwan dream. It’s a nightmare scenario both for native-born Taiwanese and for expats who love their adopted home, like waking up to find that the monster has finally crawled out from under your bed.

Terrifying, yes. And also damned inconvenient. If China did attack, the internet would almost certainly be cut off, as well as much of the infrastructure we take for granted. Phone service, electricity, and even water services might be problematic. Food could soon run out, and access to medical services, fire fighters, the justice system, and banking all severely curtailed. Life as we had known it would be over, perhaps even literally over for people living too near a military target. Even those far from the battle zones would be seriously impacted.

But could an attack possibly happen? Will it actually happen? And if so, when and how?”

The article points out the only meteorological windows for a sea attack are October and April and summarizes five logical scenarios:

1. a minimalist seizure of outlying islands closer to the mainland;

2. hybrid warfare to interfere with the economy;

3. a serious attack but no invasion;

4. a proper invasion;

5. flattening Taiwan without invading it.

It thinks #3 is most likely. Some others think #1 or #2. Those thinking ‘none of the above’ should note defense analyst @tshugart3 says three of China's largest/newest roll-on/roll-off civilian ferries appear to be off their normal routes and are in or have moved south toward the Taiwan Strait – and he is the author of a detailed article on how China has long prepared to use civilian maritime logistics against Taiwan. 

This Daily doesn’t know if Nancy Pelosi went long or short the Vix in flight. However, we are not surprised that we are now where we are – heading towards a high-risk, no-win scenario.

The flailing US --where President Biden has Covid (again) and is in one technical definition of recession-- can't back down as it tries to rebuild its leading role in Asia: if Pelosi doesn’t go to Taiwan, China will have ‘proven’ that it is able to control access to it, a red line which it would from then on likely enforce.

Neither can flailing China back down without losing face ahead of the looming Party Congress: indeed, it is going all in in other regards, e.g., trying to buy a strategic port in the Solomons; and, as its manufacturing PMI dips back below 50 again and the Caixin reading back to 50.4, may seize undeveloped land from property developers. Moreover, it knows that the US has just had to ground its F-35 fleet due to a safety issue. This kind of stand-off, and screw-up, is historically how major wars can start.

The mystery is not where Nancy is, but how the market thinks it will be able to say Nancy ‘drew’ when it is a zero-sum dynamic.

Pretending pressures are not building makes as little sense as it did when ignoring what Putin was doing on the border of Ukraine earlier this year - recall we warned back in January that war over Ukraine was far more likely than markets thought. The problem is that Taiwan and China implies disruption on a scale that would dwarf anything seen so far over Ukraine (where the EU is backing off of its planned oil/insurance sanctions, and Ukraine is stepping up its physical attacks on Russia). Thus the denialism.

Let’s also stress that it’s no mystery at all how we got to this latest crisis. We have warned for years that: globalization doesn’t deliver for enough people; not everyone who globalized shared the US world vision; global debt is too high; QE only makes rich people richer; inequality is ripping societies apart; we are living in a Lalaland of asset bubbles; populism is growing (just look at Italy’s opinion polls); China is also in deep structural trouble; the historical path is rising debt > bubbles > crisis > FX wars > trade wars > hot wars; a Great Power fragmented world order would re-emerge; fascism and communism would be back (and we can add imperialism); food prices would soar; so would energy prices (as the Wall Street Journal warns ‘Energy Prices May Keep Inflation High for Years’); industrial supply chains and logistics matter (and we remain ‘In Deep Ship’ as US port backlogs soar again); inflation isn't transitory (as the June US PCE deflator was 0.6% m-o-m, 6.8% y-o-y, and 0.6% m-o-m, 4.8% y-o-y core); global interest rates would have to rise sharply; and the US dollar was the only game in town. I will throw in that we also said rates could rise AND some form of QE/MMT happen anyway, perhaps to pay for military spending - and Europe is now doing exactly that kind of thing.

To draw a market parallel, this Pelosi stand-off is similar to the zero-sum dynamic behind the central bank rates response to inflation, which was "They can't raise rates!" vs. "They can't not raise rates." There was never a middle ground ‘draw’ to aim for - and which side won that zero-sum?

Yet even as the Fed dropped its forward guidance, while suggesting it could go forward in very large steps if needed, the market seized on suggestions that rate hikes could also slow, which "means" US rates will then start to fall sharply in 2023. Indeed, while July saw the Fed Funds rate rise 75bps to 2.50%, stocks were up 8-10%, bond yields distinctly lower, high yield spreads tighter by around 100bps, and the key US 30-year mortgage rate around 60bps lower.

More wealth effects. More inequality. Higher commodity prices. More strain on the global economic system. More failing supply chains, and food and energy crises. More strain on the global security system that has led us to Russia-Ukraine, China-Taiwan (and US-Iran and Serbia/Kosovo?).

And perhaps more strain on central banks, who don’t want to see any of this happening because it will mean they have to do even more on rates to reverse it. Unless they do want to see it happening, in which case we are in an even bigger mess than some think we are. But if they don’t, then market expectations of rate cuts in 2023 are likely to be as accurate as expectations of no rate hikes in 2022 were. And as expectations are that all will end well with this mystery over where Nancy is or isn’t.

The Challenges Ahead For Britain's New Prime Minister

  The world as seen from a small but still significant island. (Great article!)

Authored by Alasdair Macleod via GoldMoney.com,

Britain’s next Prime Minister must address two overriding problems: London is at the centre of an evolving financial and currency crisis brought forward by a change in interest rate trends; and the reality of emerging Asian superpowers must be accommodated instead of attacked.

This article starts by examining the economic challenges the next Prime Minister faces domestically. Are the two candidates equipped with a strategy to improve the nation’s economic prospects, and why can we expect them to succeed where others have failed?

It is unlikely that either candidate is aware that there has been a fundamental shift in the direction of interest rates, the consequences of which are undermining debt mountains everywhere. The problem is particularly acute for the euro system. As well as for other major currencies, London operates as the clearing centre for transactions between the Eurozone’s commercial banks. If the euro system fails, London’s survival as a financial centre could be jeopardised.

The other major challenge is geopolitical. Being tied into America’s five-eyes intelligence network, coupled with policies to remove fossil fuels as sources of energy Britain is condemned to falling behind the Asian superpowers, and sacrificing trading relationships with which her true interests must surely lie.

And then there were two…

The selection process for a new Conservative Prime Minister has whittled it down to two — Rishi Sunak and Liz Truss. The former is a wealthy meritocrat, former Goldman Sachs employee and hedge fund manager, the latter a self-made woman. Sunak was Chancellor (finance minister). Among several other high-office roles, Truss has been First Secretary to the Treasury. Both, in theory at least, should understand government finances. Both studied PPE at Oxford, so are certain to have been immersed in the Keynesian version of economics, which also informs Treasury thinking.

Despite their common Treasury experience and being on that same page, Sunak’s and Truss’s pitches on economic affairs have been very different. Sunak aims to maintain a balanced budget, reducing taxes afterwards as economic growth increases tax revenues. This is Treasury orthodoxy. Truss is claiming she will cut taxes more immediately in an emergency budget to stimulate growth. She is emulating the Thatcher/Reagan supply-side playbook.

The politics are straightforward. The electorate is comprised of about 160,000 paid up Conservative Party members, mostly leaning towards less government, free markets, and lower taxes. As a subset of over 40,000,000 voters nationwide, they may be reasonably representative of a silent majority in the middle classes which believe in conservative societal values.

The one issue that matters above all for Conservative Party members is taxes. Given their different stances on tax, Truss has emerged as the early favourite. Furthermore, to the disadvantage of Sunak very few Chancellors make it to Prime Minister for a reason: like Sunak, they nearly always push the Treasury line on maintaining balanced budgets over the cycle, which means that they are for ever trying to pluck the goose for more tax with the minimum of hissing. Don’t expect geese to willingly vote for yet more exfoliation.

The issue of less government in the total economy is not properly addressed by either candidate or is restricted to vague promises to do something about unnecessary bureaucracy. In arguing for free markets, Truss is stronger in this respect than Sunak who appears to be more captured by the permanent establishment.

With the exception of Treasury ministers, all politicians in office are naturally inclined to seek increased departmental budgets, which is a problem for all tax cutters. But to understand the practical difficulties of reducing government spending, we must make a distinction between departmental expenditure limits and annually managed expenditure. The former is budgeted for by the Treasury in its allocation of financial resources. The latter can be regarded as including additional costs arising from public demand for departmental services. This explains why total departmental expenditure for fiscal 2020-21 was £566.2bn, representing about half of total government spending of £1,112bn. 

With government spending split 50/50 overall on departmental expenditure limits and public demands for services, both issues must be addressed when reducing costs meaningfully. Failing to do so means only departmental expenditure limits are tackled, resulting in less resources to deliver mandated public services. That would be seen by the opposition and the public to be a government failing. Therefore, it is not sufficient to merely say to ministers that they must cut departmental expenditure, but laws and regulations must also be changed to reduce public service obligations as well. That takes time.

Imagine tackling this problem with respect to the National Health Service. The NHS takes 34% of total departmental expenditure limits, yet it clearly fails to efficiently provide the public with the services required of it. Health ministers always argue that it needs more financial resources. This is followed by education (13% of total departmental expenditure). What do you do: sack teachers? And Scotland at 8% is another no-go area, where cuts would likely encourage the nationalist movement. And that is followed to a similar extent by defence spending at a time of a proxy war against Russia…

One could go on about other ministry spending and the costly provision of their services, but it should be apparent that any realistic cuts in public services are likely to be minor and overwhelmed by rising and unbudgeted departmental input costs which are indirectly the consequence of the Bank of England’s monetary policies. It is therefore hardly surprising that neither Sunak nor Truss is seriously engaged with the subject of reducing state spending, merely fluffing around the topic.

But total state spending is going to be an overriding problem for the future PM. Figure 1 shows the long-term trend of total managed expenditure relative to GDP, admittedly exacerbated by covid. Since then, there has been a recovery in GDP to £2,239bn in the four quarters to Q1 2022, and covid related disbursements have materially declined, so that in the last fiscal year, total government spending is estimated to have dropped to 46.5% of GDP from the high point of 51.9%.

However, rising interest rates globally are set to drive the UK economy into recession. Even if the recession is mild, while GDP falls this will increase public spending on day-to-day public services back up to over 50% of GDP.

The philosophical problem for the new PM can be summed up thus: with half the economy being unproductive and the productive economy shouldering the burden, how can economic resources be restored to producers in a deteriorating economic outlook?

Inflation is not going away

Orthodox neo-Keynesians in the government and its (supposedly) independent Office for Budget Responsibility do not recognise that the root of the inflation problem is the debasement of currency and credit. Furthermore, by thinking it is a short-term supply chain problem, or a temporary energy price spike due to sanctions against Russia, the OBR, in common with the Bank of England takes the view that consumer price rises will return to the targeted 2% level. Only, it might take a little longer than originally thought.

Figure 2 shows the OBR’s latest forecasts (in March) for inflation (panel 1) and real GDP (panel 2).

Note how the October forecast failed to reflect an annual CPI rising to more than 4%. In March that was raised to 8%, which is already outdated. Price inflation rising to over 10% is on the cards, and it should be noted that the retail price index, abandoned by government because of the cost of using it for indexation, already shows annual consumer inflation to be rising at 11.8%.

The OBR’s response to these unwelcome developments is simply to push out an expected return to the 2% inflation target a little more into the future. Similarly, it expects the trajectory of GDP growth will be maintained, having just slipped a little.

On this evidence, the OBR’s advice to a future prime minister and his chancellor will be badly flawed. Instead of going down the macroeconomic approach of modelling the economy, instead we need to apply sound, unbiased economic and monetary theories. 

We know that the Bank of England’s monetary policies have debased the currency, reflected inevitably in a falling purchasing power for the pound. That is what drives the increase in the general level of prices. The primary cause is not, as government and central bank officials have stated, supply chain disruptions and the consequences of the war in Ukraine. That has only made things worse, in the sense that higher energy and commodity prices along with supply bottlenecks have encouraged the average citizen to adjust the ratio of personal liquidity to purchases of goods and services, bringing forward purchases and driving prices even higher. The debasement of fiat currencies everywhere is encouraging their users to dump them in what appears to be a slowly evolving crack-up boom encouraged by a background of product shortages.

The common view that consumer price inflation is a temporary phenomenon is little more than wishful thinking, as is the latest argument developing, that rising interest rates will deflate economic demand. The official line is that lower demand will lead to lower prices. Realistically, less demand is the product of less supply, so it does not lead to lower prices. And here we must turn to the second panel in Figure 2, of the OBR’s modelling of real GDP.

With the annual increase in the RPI already at 11.8% and that of the CPI at 9.1%, a bank rate of 1.25% fails to recognise the changed environment. Interest rates, bond yields and therefore the cost of government funding are all set to rise substantially. The consequences for financial assets will be to drive their market values lower. And unprofitable businesses relying on finance for their existence risk being wiped out, either because they will lose hope of ever being economic, or bank credit will be withdrawn from them.

All empirical evidence is that currency debasement accompanies the destitution of an economy. Therefore, it is a mistake to think that a slump in business activity will neutralise the inflation problem. To deal with the inflation problem, the new prime minister will have to resist intervening and let all failing businesses go to the wall. But whoever becomes PM, there is no mandate to simply let events take their course. Instead, the burden of sustaining a failing economy will certainly lead to a soaring fiscal deficit — financed, of course, by yet more monetary debasement.

Without quantitative easing, the appetite of commercial banks for financing the fiscal deficit at a time of rising bond yields is uncertain. It is a different environment from a long-term trend of declining interest rates, underwriting bond prices. A trend of rising interest rates is likely to lead to funding dislocations, as we saw in the 1970s. Furthermore, commercial banks have more urgent problems to deal with, which is our next topic.

Banks will be in self-preservation mode

GDP is no more than a measure of currency and credit in qualifying transactions. Growth in nominal GDP is a direct consequence of an increase in currency and bank credit, particularly the latter. An old rule of thumb was credit was larger than currency in the ratio of perhaps ten to one. The evolution of banking, the war on cash, and the advent of debit cards have changed that, and since covid, the ratio has increased to 37:1.

This means that changes in nominal GDP are almost entirely dependent on the supply of bank credit for the production of goods and services. The availability of customer deposits to draw down for spending reflect the commercial banking network’s willingness to maintain the asset side of their balance sheets, comprised of lending and financial investment. Customer deposits, which are a bank’s liabilities, will contract if bank lending, recorded as a bank’s assets, contract. This is already evident in the slowing down of broad measures of money supply growth.

Given that bank balance sheets are highly leveraged, and that the economic outlook is deteriorating, bank lending is almost certainly beginning to contract. This vital point appears to be completely absent in the OBR’s modelling of the economic outlook.

By the usual metrics, commercial banks are extremely over-leveraged after thirteen years of the current bank credit cycle, in other words since the Lehman failure. Table 1 below summarises the position of the three British G-SIBs (designated global systemically important banks). They can be regarded as a banking proxy for exposure to global systemic risks.

Important points to note are that balance sheet leverage, the relationship of assets to total equity, are as much as double multiples of between eight and twelve times at the top of a normal bank credit cycle. Balance sheet equity includes accumulated undistributed profits as well as the common equity entitled to them.[i] All three banks’ common shares trade at substantial discounts to their book value. 

Their share prices tell us that markets have assessed that there is a high level of systemic risk in these banks’ shares. It would be extraordinary if the directors of these banks are blind to this message. Before covid when economic dangers were less apparent, it would have been understandable though not necessarily excusable for them to use this leverage to maximise profits, particularly since all banks were following similar lending policies. 

Covid came, and all banks had no option but to extend loan facilities to businesses affected, for fear of triggering substantial loan losses on a scale to take down the banks themselves. Furthermore, the government put in loan guarantee schemes. Post-covid, bankers face the withdrawal of government loan guarantees, rising interest rates and the consequences for their risk exposure to higher interest rates, as well as declining values for mark-to-market financial assets — the latter affecting both bank investments and collateral against loans.

Clearly, the cycle of bank credit is on the turn and will contract. The dynamics behind this phase of the cycle indicate that to take leverage back down to more conservative levels the contraction will have to be severe. But an excessive restriction of credit both causes and produces a run for cash notes and gold. And thus, without intervention banks and businesses all collapse in a universal crash. 

With very little of GDP recorded in pound notes and coin, as a statistic it is driven overwhelmingly by the quantity of bank credit outstanding. In a credit contraction the GDP statistic will collapse — unless the Bank of England takes upon itself the replacement of credit in a massive economic support programme. 

The consequences are sure to undermine government finances badly. Sunak’s hope that a balanced budget can be maintained, let alone permit him to oversee tax cuts when government finances permit, becomes a fairy tale when tax revenues slump and spending commitments increase. So, too, is Truss’s belief that immediate tax cuts will benefit economic growth and restore tax revenues. The reality of office is likely to decree fiscal policies very different being those being touted by both candidates.

The impending collapse of the euro system

I wrote recently for Goldmoney about the inevitable crisis developing in the euro system, here. Since that article was published, the European Central Bank has raised its deposit rate to zero and instituted a rescue package for the highly indebted PIGS in its awkwardly named Transmission Protection Instrument. In plain language, the ECB will continue to buy PIGS government debt to ensure their yields do not rise much further relative to benchmark German bunds.

It is increasingly clear that the euro system is in deep trouble, caught out by the surge in consumer price inflation. Rising interest rates, which have only just started, will undermine Eurozone commercial bank balance sheets because they obtain much of their liquidity by borrowing through the repo market.[ii] TARGET2 imbalances threaten to collapse the system from within as the interest rate environment changes. The ECB and its shareholding network of national central banks all face escalating losses on their bonds, which earlier this month I calculated to be in the region of €750bn, nearly seven times the combined euro system balance sheet equity.

Not only does the whole euro system require to be refinanced, but this is at a time when the Eurozone’s G-SIBs are even more highly leveraged than the three British ones. Table 2 updates the one in my article referred to above.

With the average Eurozone G-SIB asset to equity ratios of over 20 times, the euro’s G-SIBs are one of the two most highly leveraged networks in global banking, the other being Japan’s. The common factor is negative interest rates imposed by their central banks. The consequence has been to squeeze credit margins to the extent that the only way in which banks can sustain profit levels is to increase operational gearing. Furthermore, an average balance sheet leverage of over 20 times does not properly identify systemic risks. Bank problems come from extremes, and we can see that at 27 times, Group Credit Agricole should concern us most in this list. And we don’t see all the other Eurozone banks trading internationally that don’t make the G-SIB list, some of which are likely to be similarly exposed.

The problem for Britain is twofold. Including its banks, Britain’s financial system is more exposed to Eurozone risks than any other, and a Euro system failure would be a catastrophe for it. Furthermore, Eurozone banks and fund managers use UK clearing houses for commercial euro settlements. Counterparty failures will contaminate systemically all participants, not only dealing in euros but all the other major currencies settled in London as well. The damage is sure to extend to forex and credit markets, including all OTC derivatives which are an integral part of bank clearing facilities.

At the last turn of the bank lending cycle, it was the securitisation of liar loans in the US which led to what is commonly referred to as the Great Financial Crisis. This is a term I have rarely used, preferring to call it the Lehman Crisis because I knew, along with many others, that the non-resolution of the excesses at the time would store up for an even greater crisis in the future. We can now begin see how it will be manifested. And this time, it looks like being centred on London as a financial centre rather than New York.

We must hope that a collapse of the euro system will not happen, but there is mounting evidence that it will indeed occur. The falling row of dominoes is pointing at London, and it could even happen before the Conservative Party membership have voted for either Truss or Sunak in early-September.

Dealing with a banking crisis fall out

On the advice of the Bank for International Settlements, following the Lehman crisis the G20 member states agreed to make bail-ins mandatory, replacing bailouts. This was a politically motivated move, fuelled by the emotive belief that bailing out banks are at the taxpayers’ expense. In fact, bank bailouts are financed by central banks, both directly and indirectly. The only taxpayer involvement is marginally through their aggregated savings in pension funds and insurance companies. But these funds have been over-compensated with extra cash through quantitative easing. The audit trail leads to the expansion of currency and credit every time, and not to taxes as the phrase “taxpayer liabilities” implies.

All the G20 nations have passed legislation enabling bail-in procedures. In the Bank of England’s case, it retains discretion to what extent bail-in as opposed to other rescue methods might be used. As to specifics for the other G20 members it is unclear to what extent they have retained this flexibility and understand bail-in ramifications. And it could be an additional confusion likely to complicate a global banking rescue, compared with the previously accepted bail-out procedures.

In theory, a bail-in reallocates a bank’s liabilities from deposits and loans into shareholders’ capital — excepting, perhaps, smaller depositors covered by deposit guarantee schemes. But even that is at the authorities’ discretion. 

The objective can only make sense for single bank, as opposed to systemic failures. But if it were to be applied to an individual banking failure in the current unstable situation, it would almost certainly undermine other banks, as bank loans and other non-equity interests would be generally liquidated, and deposits flee to banks deemed to be safer as panic sets in. The risk is that bail-in procedures could set off a system-wide failure, particularly of the banks rated by the market with substantial discounts to book value — including all the UK’s G-SIBs (see Table 1 above).

Even assuming the Bank’s bail-in procedures are ruled out in dealing with a systemic banking crisis, to keep banks operating will require a massive expansion of credit from the Bank of England. In effect, the central bank will end up taking on the entire banking system’s obligations. With London at the centre of a global banking crisis, all other major central banks whose banking and currency networks are exposed to it must be prepared to take on all their commercial banking obligations as well.

Britain’s place in the world must be secured

The problems attendant on currencies afflict all the majors, with the UK at the centre of the storm because of its pre-eminent role in international markets. There is no evidence that the leadership at the Bank of England is equipped to understand and deal with an increasingly inevitable economic and monetary crisis which will take sterling down. Nor has there been any attempt by the Treasury to rebuild the nation’s depleted gold reserves to protect the currency, which is a gross dereliction of public duty.

But we must now turn our attention to geopolitical matters, where there is currently no pragmatism in Britain’s foreign policies. Since President Trump’s aggressive stance against the challenge to America from Chinese technology, the UK as America’s most important partner in the five-eyes intelligence sharing agreement has sided very firmly with America against both Chinese and Russian interests.

The recent history of the five-eyes partnership is one of political blindness — ironic given its title. Wars against terrorism, more correctly US intelligence operations which destabilise Muslim nations before the military go in to sort the mess out have been a staple since the overthrow of Saddam Hussein. A series of wars in the Middle East and Afghanistan have yielded America and her NATO allies only pyrrhic victories at best, created business for the US armaments industry, and resulted in floods of refugees attempting to enter Europe.

Meanwhile, these actions have only served to cement the partnership between Russia, China, and all the Asian members of the Shanghai Cooperation Organisation amounting to over 40% of the world population. They have a common mission to escape from the dollar’s hegemony.

America’s abandonment of Afghanistan was pivotal. As America’s closest intelligence partner, Britain following Brexit is no longer a direct influence in Europe’s domestic politics. Together, these factors have surely encouraged Putin to adopt more aggressive tactics with the objective of undermining the NATO partnership, always seen as the principal threat to Russia’s borders.

This is the true objective behind his proxy war against Ukraine. Supported by Britain, the US response has been to fuel the Ukrainian proxy war by supplying military hardware. But the biggest mistake made by the NATO partnership has been to impose sanctions on Russian trade.

The consequences for energy and other vital commodity prices do not bear unnecessary repetition. The knock-on effects for global food prices and the shortages emerging ahead of the winter months are still evolving. Sanctions have become NATO’s suicide note — it is beginning to look like a modern version of Custer’s last stand. 

It is surely to the private horror of Western strategists that the sense behind Putin’s strategy is emerging: it is to further the economic consolidation of Asia with the unfettered advantages of fossil fuels traded at significant discounts to world prices. At their own behest, America and its NATO allies are shut out of it entirely.

Global fears of climate change and the war against fossil fuels are essentially a Western concept, not shared by the great Asian powers and the Middle East. The hysteria over fossil fuel consumption has led European nations to eliminate their own production in favour of renewables. Consequently, to make up energy shortfalls they have become dependent on imported oil and gas from Russia. And that is what will split Europe away from US hegemony.

Unrestricted energy supply is crucial for positive economic outcomes. The result of US-led sanctions is that energy starvation faces all her allies, including Britain and the members of the European Union. As an oil-producing nation herself, America is less affected, her allies suffering the brunt of sanctions against Russian energy supplies. 

By committing to policies to lessen climate change without fossil fuel sources of energy, the economic prospects for Europe and the UK are of economic decline. 

Only last weekend agreements have been signed between Russia, Iran, and Turkey, with Iran due to become a full member of the Shanghai Cooperation Organisation later this year. Other than Turkey’s wider economic interest, it is essentially about oil. In addition to these developments, Russia’s Foreign Secretary Sergei Lavrov went on to address the Arab League in Cairo. It is clear that Russia is building its relationship with oil producers in the Middle East as well, whose members are faced with declining Western markets and growing Asian demand.

Therefore, British policy tied into US hegemony with a self-imposed starvation of energy is untenable. It is worse than being on the losing side. It guarantees economic decline relative to the emerging Asian powers. A future Prime Minister needs to pursue a more pragmatic course than the bellicose stance against Russia and China, currently espoused by Liz Truss. As Britain’s current Foreign Secretary, she is briefed by the UK’s intelligence services, which are closely aligned with their American colleagues. There is groupthink going on, which must be overcome.

The interest rate trend and the looming threat of the mother of all financial crises on London’s doorstep requires a leadership strong enough to take on the civil service, always complacent, and guide the wider electorate through some troubling times. Following the financial and currency crisis, mindsets must be radically changed, steered away from perpetual socialisation of economic resources back towards free markets. Which of these two candidates for the premiership see us through? Probably neither, though being less a child of the establishment Liz Truss might offer a slim chance.

The task is not impossible. Currencies have completely collapsed before, and nations survived. Instead of being restricted to one or a group of nations, the looming crisis threatens to take out what we used to call the advanced economies in their entirety, so it will be a bigger deal. Fortunately for Britain, her citizens are less likely to riot than their continental cousins. But as a warm-up for the main event, our new leader will have to navigate through growing discontent brought on by rising prices, labour strikes and all the other forms of economic pestilence which bought Margaret Thatcher to power.