Money Flow Trading Method along with Risk Management

https://www.zerohedge.com/news/2019-...ops+to+zero%29

Submitted by Joseph Carson, Former Chief Economist, AllianceBernstein,
Decisions to change official rates can no longer be made exclusively on economic growth and price considerations as the dynamics of business cycles have changed. The new business cycle consists of growth and financial leverage (debt), replacing the old cycle of growth and price leverage.

https://zh-prod-1cc738ca-7d3b-4a72-b...-vs-US-GDP.jpg


As such, decisions to provide more monetary accommodations to sustain growth or lift inflation to the preferred target has to be weighed against growing financial vulnerabilities associated with the sharp rise in private sector debt. Promises by policymakers to provide additional monetary accommodation to sustain the growth cycle is more likely to do more long-term harm than good as it will only increase the scale of financial vulnerabilities.


In recent decades, monetary policy through its adjustments and control of short-term interest rates has had more influence on financial transactions than economic ones as individuals and nonfinancial corporations have engaged in active management of the liability side of their balance sheet, taking on record amounts of debt at relatively low rates, elevating real and financial asset prices in the process, while providing only modest benefits to overall economy.


For example, since 2011 nonfinancial corporations have added to $5.2 trillion in debt to their balance sheets. Corporations used this debt for a variety of purposes, such as acquiring other companies, purchasing real estate, buying back their own stock, while also investing in plant and equipment to run their regular business operations. Yet, the incremental growth in nonresidential investment has been a little more than $1 trillion. In other words, for every $5 borrowed by nonfinancial corporations only $1 has found itself redeployed in the real economy.


In the 2000s cycle, households also went on a borrowing binge, adding over $7 trillion in new debt over the span of seven years. Most of the new debt was invested in real estate. Over the course of the 2000's growth cycle households added $2 of debt for every $1 increase in consumer spending and investment in housing. Much higher ratios of debt to new investment occurred during the dot.com boom of the late 1990s and the the commercial real estate boom of the late 1980s.


All of these episodes highlight the new linkages and tradeoffs between monetary policy and financial activities. Yet, the failure to adapt, and even recognize, the changing linkages caused policymakers to miss, or downplay, the buildup of financial vulnerabilities in the system and the adverse shocks to the economy and the financial system were repeated time and again.


Each period of excessive credit and financial leverage was followed by a long bout of debt-deleveraging forcing the Fed to engage in a "financial engineering" campaign to cushion the economy and bring stability to the financial system. Following the commercial real estate crash of the early 1990s the Federal Reserve lowered official rates 650 basis points; 550 basis points following the dot-com bubble; and 500 basis points (and probably an extra 200 basis points of easing occurred with the Fed’s asset purchase program) after the housing bubble.


Today, even though the current environment has similar characteristics---large increases in debt and elevated asset prices--that preceded each of the past three recessions policymakers do not seem to be concerned about the growing buildup of financial vulnerabilities. Yet, the financial markets with Treasury yields out to 10 years trading well below the target on the federal funds rate suggests that the limits of the Fed's "financial engineering" have been reached and additional monetary accommodation will have a negative trade-off between costs and benefits.

https://zh-prod-1cc738ca-7d3b-4a72-b...eZa40vVMw.jpeg


In fact, it would not be a surprise if market yields stay near current levels even if the Fed decides to lower official rates since encouraging more debt growth would only tip the scale more so to a bad outcome down the road.

https://kingworldnews.com/wtf-citi-g...possibly-1700/

Gold “Coiling” For Explosive Move Higher, Possibly $1,700+
It (gold) looks to be “coiling” having completed two 76.4% pullbacks and now a potential inverted head and shoulders pattern at $1,341 that would suggest north of $1,500 IF it gives way on a weekly close basis (see chart below).

Gold “Coiling” Ahead Of A Violent Move To The Upside

https://kingworldnews.com/wp-content...k-I-662019.jpg
If this is accompanied by a break of the pivotal levels at $1,358-1,375 we would expect this move to accelerate. $1,500+ would be a minimum target on this move with an extended target above $1,700 possible (see chart above).
Risk Off Dynamic
This fits very well with our bias of further risk off dynamics in the months ahead as well as aweaker US dollar.
https://kingworldnews.com/wp-content...Rain-Storm.jpg
32% Rally In Gold Over 3 Months
It is not lost on us that we saw gold also in an extended consolidation in 2007 before breaking out impulsively to the topside just 2 weeks before the first Fed cut (50 basis points) in September that year. Resulting in a 32% rally over 3 months from August to November that year (see chart below).

32% Gold Rally In Just 3 Months!

https://kingworldnews.com/wp-content...-II-662019.jpg
Don’t forget to read Art Cashin’s remarkable piece titled A Day The World Will Never Forget by CLICKING HERE.
***Also just released: Is A Massive Gold Breakout Above $1,350 About To Unfold? CLICK HERE TO READ.
2019 by King World News. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. However, linking directly to the articles is permitted and encouraged.

https://kingworldnews.com/note-on-th...and-much-more/

As we approach the end of the first week of trading trading in June, today the top trends forecaster in the world, Gerald Celente, discussed the gold bull run, the World Bank, the Fed, China, Morgan Stanley, the global economy and more.

The Gold Bull Run
June 6 (King World News) – Gerald Celente: “Back in 2005, when gold was $421 per ounce, we alerted Trends Journal subscribers to get ready to ride the “Golden Bull: Once gold breaks past the magic $500 per ounce mark… it will push gold beyond the 1980’s high of $885 per ounce.”

On target, gold had a steady rise, peaking at $1,917 per ounce in 2011. Subsequently, when prices slumped to the mid $1,000 per ounce range in 2015, we had accurately forecast that prices bottomed out and that the next “Gold Bull Run” would begin when gold breaks above $1,450 per ounce…

BONUS INTERVIEW:

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https://kingworldnews.com/wp-content...-Barksdale.jpg

Considering weakening economic fundamentals and how central banks will address them — from Australia cutting interest rates to new lows, to China inventing money pumping schemes to artificially inflate falling equities and its sagging economies with cheap money — that breakout point is on the near horizon.


GLOBAL RECESSION
In the U.S., despite relatively strong economic data, bond markets are signaling a sharp slowdown. With the 10-year Treasury down well below yields on the three-month Treasury, the inverted yield curve has preceded both interest rate cuts and recession.


Indeed, in our 27 March Trend Alert we warned, “Fed Can’t Wait: Must Move Now.” With negative economic data rolling in from nations across the globe, on 30 May, U.S. Federal Reserve Vice Chairman Richard Clarida said the Fed was “very attuned” to those indicators and that it would consider “accommodative” monetary policy.


On 3 June, James Bullard, head of the St. Louis Fed, citing a global economic slowdown, low inflation and trade war risks, said lower interest rates might be “warranted soon.”

The next day Federal Reserve Chairman Jerome Powell signaled the Fed would cut rates if economic conditions worsened.

And worsening they are. U.S. manufacturing output has fallen for three of the last four months, reflecting the demand for products is weakening. On the employment front, ADP reported that only 27,000 new jobs were created in May, the fewest since March 2010.

This week Morgan Stanley warned of a “litany of downside risks we see for markets.” Indeed, Stock ETFs shed a record $20 billion in May. Fearing deteriorating economic conditions, U.S. junk bonds suffered $6.5 billion in outflows.


On the Emerging Markets front, for five consecutive weeks, investors have been pulling funds from EM stocks, totaling $7.8 billion in outflows.

WEAK NUMBERS
The eurozone’s Purchasing Managers Index hit a two-month low in May, dropping to 47.7. Below 50 indicates contraction.

In China, manufacturing productivity fell to a 10-year low, driving its PMI down to 49.4 from 50.1.

From Brazil to South Africa, nations are slumping in recession. The World Bank warned of “a deepening slowdown in global trade, and sluggish investment in emerging and developing economies.”

TREND FORECAST:
In an effort to artificially stimulate equities and economies with monetary methadone, nations will in effect devalue their currencies, thus pushing investors to seek safe-haven assets such as gold.

As we have long noted, gold must first pierce the $1,385 an ounce mark to hit the $1,450 break out point, which will then spike gold prices above their 2011 highs.

Don’t forget to read Art Cashin’s remarkable piece titled A Day The World Will Never Forget by CLICKING HERE.

***Also just released: WTF? Citi: Gold “Coiling” For Explosive Move Higher, Possibly $1,700+ CLICK HERE TO READ.

2019 by King World News. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. However, linking directly to the articles is permitted and encouraged.

https://www.zerohedge.com/news/2019-...ops+to+zero%29

Authored by Mike Shedlock via MishTalk,
The bookmakers give Boris a 1 in 3 shot of becoming the next PM. Focus on reality, not bookie odds.

https://zh-prod-1cc738ca-7d3b-4a72-b...6_18-55-45.jpg

The "Stop Boris" campaign is in full swing, but it's as likely to be as much of a success as the "Anybody But Trump" Campaign in 2016.

Stop Boris Theory

1. Boris has to beat out all of the other Brexiteers. He may fail.
2. If Boris survives to the final round, he still has to beat out someone who promises to secure a deal.
3. Tories will rally around the second choice.

For starters, don't confuse betting odds with true odd. Betters are not reliable predictors of elections. Bookies arrange their books (or at least attempt to), based on bets people make. The bookies don't care who wins or loses if their books are properly balanced. Betting is not a scientific poll.

Missing the Boat
An alleged Tory "Polling Expert" says Boris Johnson Fails to Appeal to Floating Voters Needed to Win Election.

Tory peer Lord Hayward said there was a "striking antipathy" towards the former Foreign Secretary in traditional Tory areas like the Home Counties.
The peer said whoever becomes the next Tory leader must win over those who voted Leave in 2016 if the party is to stand any chance of victory.
However, he said they must also be "transfer-friendly", meaning they appeal to floating voters more interested in competent government.
By that measurement, Mr Johnson scores badly compared to leadership rivals Michael Gove and Jeremy Hunt. "Boris is pitching to MPs at the moment saying 'I am the one who will win'," Lord Hayward said.

Remainer Sap
Hayward does not provide "expert analysis".

Instead, Hayward provides heaping cups of Remainer sap in the form of the same misguided Remainer theories that led to the demise of Theresa May.

Delusional Remainers
Similarly, Independent writer John Rentoul misses the mark by a mile with his analysis: Boris Johnson is going to blow it – and it will be Michael Gove who will pip him to become prime minister.

These people are delusional Remainers.

Rise of the Brexit Party

1. Gove and Hunt are as pathetic as Theresa May.
2. Wishy-washy compromise is not the way to go.
3. Nigel Farage's Brexit Party provides all the evidence one needs.

MP's Rally Around Boris
Eurointelligence provides excellent analysis of what's really taking place.

We are full of admiration for the sporting spirit of the British media. But leadership race feels to us like a bit of a misnomer for what is currently dominating Tory and UK politics. It is not really a race. It may not even be a competition. Boris Johnson has been in pole position from the start, and he is now building on his lead.

The Times has a story this morning that three Remain-supporting Tory junior ministers are supporting Johnson. They said that he is the only candidate who can save the party from extinction. Self-preservation - not Brexit - has suddenly become the main issue for the Tories. Johnson is the only candidate with a chance to defeat Jeremy Corbyn in a general election. MPs have strong views on Brexit. But they have even stronger views on the importance of holding their own seats. They are supporting the leader most likely to ensure their political survival.

The main effect of Farage on British politics is not his own election results, but his impact on the Tories. Like Farage, Johnson draws on the benefit of a simple message. Farage frames the argument as one of Brexit versus betrayal. For Johnson it is a choice between Brexit and the extinction of the Tory party.

The whole stop-Boris campaign some MPs talked about never made sense to us because of the way the vote is structured. Starting Thursday next week, MPs will vote for a shortlist of two candidates in four elimination rounds. The remaining three votes will take place June 18, 19 and 20. Johnson has so far received public endorsements by forty MPs, which will be enough to get him into the third round of voting. Michael Gove and Jeremy Hunt have twenty-six each.


Tory members will then choose one of the two from the shortlist. We know that Johnson is the strong favourite among the party faithful. If he were to drop out for some reason, we expect the winner to be one of the other Brexiteers - Dominique Raab for instance. We doubt that Tories will vote for Gove, given his support for Theresa May’s withdrawal agreement. A recent story in the Daily Telegraph claimed Gove proposed a Brexit extension until 2020 in a cabinet meeting. That makes him essentially unelectable in view of the Farage threat. We cannot see the Tories voting for any candidate who fails to deliver Brexit before general elections. And these might arrive early, given the narrow majority in the House of Commons.


Self-Preservation
Eurointelligence commented "MPs have strong views on Brexit. But they have even stronger views on the importance of holding their own seats."
Bingo.

Change UK Provides Lesson in Reality

The misguided set of eleven "Change UK" MPs is now down to five.

"Change UK" is a new political party formed by former Labour and Tory MPs who wanted to Remain.

What the hell kind of change is that?

Dire Results
Amusingly, Change UK Lost Six of its 11 MPs After Dire EU Elections Result.

Six of Change UK’s 11 MPs, including its spokesman, Chuka Umunna, and interim leader Heidi Allen, have abandoned the fledgling party after its dire performance at the European elections.


Message is Clear
Change UK will soon vanish. It elected zero MPs in the EU parliament elections and will elect zero MPs in the next UK general election.

Six Change UK politicians already abandoned the party out of self-preservation.

The best way for politicians to keep their job is to deliver Brexit.

Neither Hunt nor Gove will do that.

One way or another a die-hard no-deal Brexiteer (Johnson or Dominic Raab) will properly deliver Brexit.

https://www.zerohedge.com/news/2019-...ricas-poorest?

As part of the Fed's broad review its monetary policy framework, strategy, tools, and communication practices that the US central bank is undertaking this year, one of the most controversial aspects under consideration is the implementation of "symmetric" inflation targeting, i.e., allowing the economy to run hot without hiking rates in hopes of stimulating growth, well, that's the stated purpose. The real purpose is the Fed's burning desire to inflate away the record US debt however that has so far proven virtually impossible as the current stock of debt makes any rate hikes impossible. There is another problem: as BofA writes in an analysis published today, as inflation accelerates, it is the lowest income cohort, i.e. America's poorest, that experiences higher inflation than the highest income group. In other words, the Fed is explicitly creating even more inequality.


Unfortunately, this - as BofA's strategists find - "is one of the unintended costs of allowing inflation to run above target." But, as she concludes, impairing America's poor even further, "is unlikely to deter the Fed."


First, the background details:
Official inflation has persisted below the 2% target this cycle, coinciding with a drift lower in inflation expectations. Throughout this year, Fed officials have mused about "makeup strategies," allowing inflation to overshoot the target to compensate for past undershooting. At the Fed's June policy framework conference in Chicago, Fed Chair Powell noted that the models suggest this strategy would be effective, but in reality there are major credibility questions as it requires buy-in from households and businesses.

In order to become credible, a make-up strategy would need to be communicated in advance of a downturn, and be followed by years of consistent policy. To BofA, Powell's comments spray cold water all over a strict inflation averaging regime.

However, an even more important dynamic that the Fed should consider when pushing inflation above target-inflation: gains are felt unevenly by income cohort.

Empirical observations find that when inflation picks up, the lowest income cohort generally experiences higher inflation than the highest income group, because they spend more income share on rent, food at home, and other inflationary items. This can be shown by comparing the inflation rate of the bottom 20% and the top 20% income distribution, reweighted by their spending shares. As shown below, inflation runs above for lower income households given their spending composition.


https://zh-prod-1cc738ca-7d3b-4a72-b...0targeting.jpg


There is a persistently positive headline and core-excludes food and energy-inflation gap between the bottom 20% of the income distribution and the top 20%. Since 1999, the consumer in the bottom quintile has experienced 10% more cumulative headline inflation (0.39% on average) than the consumer in the top quintile income group. They have also experienced 15% more core inflation (0.47% on average), and the core inflation gap has been more stable compared with the headline inflation gap.

The headline inflation gap is highly correlated with headline inflation-the correlation is around 0.8 based on the data from 1999-2017-suggesting that inflation gap is likely to widen when headline inflation picks up. As one can imagine, the inflation gap originates in spending differences in both core items and non-core items (i.e. food and energy) for people at top and bottom of income spectrum.


To understand these gaps, BofA compares the shopping carts of these two groups (Chart 2). The largest difference within core lies in shelter. The lowest income consumer is much more likely to be a renter than a homeowner, while the opposite is true for the highest income consumer. Thus, rent of primary residence has a much larger share in the former's spending basket, while owners' equivalent rent (OER) is bigger in the latter. Rent of primary residence inflation is persistently higher than OER inflation (Chart 3), thus a higher weight in the former at the expense of latter would bias up aggregate inflation. Also, taking into account the share differences of rent of primary residence (+12.8%), OER (-9.8%), and lodging away from home (-1.5%) indicates that shelter share broadly is a larger share of spending at the low-end (net share difference around 1.5%, Chart 2 again). This provides additional upside bias given that shelter inflation generally runs hotter than broader core inflation, and is therefore a "high inflation" category (Chart 3).


https://zh-prod-1cc738ca-7d3b-4a72-b...0vs%20poor.jpg


While shelter, or rather rent, is the most important spending category, there are also other categories that contribute to the core inflation gap between the top and bottom income brackets, if on a smaller magnitude. The lowest income consumers tend to spend more on medical care services and less on things like motor vehicles, household equipment, recreation, and other vehicle spending. Like shelter, medical care inflation typically runs hotter than broader core inflation, averaging 3.8% since 1999 versus 2% for core CPI (Chart 4).

With the exception of other vehicle spending, the other major core categories where the lowest income consumer spent less than the highest income consumer generally experienced more subdued inflation relative to core. Thus, the bottom bracket loses out relative to the top bracket by allocating more of their spending to a high inflation category and less of their spending to lower inflation categories.

https://zh-prod-1cc738ca-7d3b-4a72-b...20category.jpg


Breaking down the core inflation gap, shelter and medical care explained 91% of the inflation gap on average from 1999-2017 (Chart 5). That said, since the financial crisis the contribution from healthcare has declined while shelter has picked up and now explains most of the inflation gap. The rent is, indeed, too damn high... and it is hurting the poor first and foremost.

The remaining 9% of the inflation gap was explained by categories where the lowest income bracket spent less and other categories with minor shopping cart differences from the top income bracket. The dominance of shelter explains why the core inflation gap tends to widen during periods of high inflation, as shelter is the largest cyclical component of inflation. This creates a problem for the Fed trying to overshoot inflation. In their ideal scenario, above-target inflation will be underpinned by core cyclical inflation, which is largely comprised of shelter.

Looking at the broader, headline inflation, food and energy spending differences further widen the cyclical inflation gap between income groups for headline inflation. As shown in Chart 2, the lowest income consumers tend to eat at home, whereas the highest income consumers often eat outside. Food at home inflation is more volatile than food away from home inflation, and as both move with the cycle the former will reach lower troughs and higher peaks which contributes to the cyclical nature of the inflation gap (Chart 6). Energy is also a cyclical category and lower income consumers tend to spend a greater share of their budget on utilities (Chart 7). As such, higher food and energy costs also contribute to greater cyclicality in the headline inflation gap.

https://zh-prod-1cc738ca-7d3b-4a72-b...0inflation.jpg

So are the poor always doomed to get the short end of the stick from the Fed? Well... yes, especially since as BofA ominously warns, "inequality is not the first-order consideration for Fed policy."

And her an amusing aside from BofA which asks rhetorically, it "the fact that higher inflation hurts the lowest income workers disproportionally might lead people to question if monetary policy contributes to greater inequality." Well, of course - in fact, former Fed Chair Bernanke pointed out in 2015 that that was one of the major critiques of quantitative easing. Two effects are often mentioned.

1. The "income composition channel": People in lower income buckets primarily rely on wages for income, while people in higher income buckets will also be compensated with corporate equities. If expansionary monetary policies boost corporate profits more than they do wages, those with claims to ownership of firms will tend to benefit disproportionately, worsening income inequality.
2. The "portfolio channel": Low-income workers tend to hold relatively more currency than high-income workers. Therefore, higher inflation would hurt the purchasing power of low-income consumers more than high-income, increasing consumption inequality

In short, not only is the Fed screwing the poor... it is doubly screwing the poor!


What is the Fed's defense to this argument that it has been the primary driver behind wealth and income inequality? As BofA tactfully puts it, "monetary policy is a blunt instrument and the Fed's goal is to focus on the macro, not the micro."


In other words, in the grand scheme of things the Fed's job is to focus on those pathways that make the rich richer, even if in the process the poor become even poorer, and the US middle class erodes.


Or, as BofA puts, "the goal of price stability and full employment is to ensure that the business cycle evolves as smoothly as possible. If successful, this will underpin economic prosperity for the broad population, particularly for the lower income cohorts which tends to be most affected by business cycle fluctuations. Carpenter and Rogers (2004)corroborate this view and find that during a downturn and early stages of the recovery, elevated unemployment tends to disproportionately impact low income groups."


This justification that "the poor will be worse off thanks to the Fed's policy, but will be even more worse off without it", continues:
Even for people who keep their jobs during recessions, wage growth generally worsens the most for low skilled workers. Using the Atlanta Fed's wage tracker, we can calculate the difference in median wage growth between the bottom 25% of wage earners and the top 25% of wage earners, which we call the wage gap. We find that the wage gap is highly cyclical and tends to lag the output gap (Chart 9). Thus, bottom wage earners benefit more from a strong economy and this serves to offset the wider inflation gap discussed earlier. It is worth noting that the wage gap turned positive in 2014 and is now at the highest level since 1999.


Bottom line, the Fed's apologists will say, "by stabilizing the business cycle and thereby promoting job and wage growth, the Fed produces a positive outcome for the lowest income cohort."


Yes... but there is major collateral damage which is also cumulative. The most powerful counterpoint by far, is that most (poor) people refuse to accept such a falsifiable statement - that life would be even worse if they stood up to the actor who is making lives bad - and the outcome are soaring populist movements, events such as Brexit and "Trump", and central banks that are increasingly the target of popular and populist ire. In fact, such grassroot anger at inflationary Fed policies taken to an extreme, as under the proposed policy frameworks of far-left Democrats such as AOC and Elizabeth Warren both of which are promoting MMT, or "helicopter money", would eventually result in the disintegration of the central bank model as once the government is allowed to print its own money, as MMT suggests, that's when the central bank becomes obsolete.


Incidentally, for those curious just what event catalyzed the unprecedented divergence between America's haves and have nots, we provided the answer over 4 years ago: the dramatic ascent of the "Top 1%" of earners at the expense of the "Bottom 90%" started in the early 1970s... when Nixon ended the gold standard. It is this monetary framework, more than anything, that the current iteration of the Fed will do everything in its power to protect.



https://zh-prod-1cc738ca-7d3b-4a72-b...inequality.jpg


Should it be successful, one thing is certain: the implementation of more "bubble" policies that create even greater social inequality, one which - as the French discovered in the late 18th century - inevitably culminates in revolution.


Which is, no matter how one gets there, the end of the Fed couldn't come fast enough.

https://www.bennettjones.com/Spring2...conomicoutlook

Written by David A. Dodge, Richard Dion, Serge Dupont, John M. Weekes, Michael Horgan and Valerie Hughes

After a strong performance in 2017 and the first half of 2018, the global economy slowed markedly and is projected to grow at a more moderate but also more sustainable annual rate of 3.3% from 2019 to 2021. In Section I, we discuss our projections and the risks that need to be considered. We turn to a discussion of international trade developments and prospects in Section II, including the issues facing the World Trade Organization (WTO) and Canada. Building on the global economic and trade outlook, we set out the outlook for Canada over the next three years in Section III. In Section IV, we return to the analysis of the fiscal position of Canada and the four largest provinces, taking into account the evolving economic outlook and policies announced in 2019 budgets. As usual, we conclude with a summary of planning parameters for Canadian business over the 2019 to 2021 horizon.

Section I: Global Growth to 2021
Recent Developments
After a very strong performance in 2017 and the first half of 2018, the world economy experienced a marked slowdown in the second half of 2018. Data indicates that growth has picked up in the first quarter of 2019, at least in advanced economies.

Both advanced economies and China lost growth momentum in the second half of 2018. In China, quarterly growth at an annual rate continued to decelerate slightly in the first quarter, to below 6.0%, although on a year-on-year basis growth remained at 6.4%, consistent with the official growth target. By contrast, growth in advanced economies picked up to an unanticipated extent in the first quarter, notably in the United States, the euro area, Japan and Great Britain. The buoyant 3.1% growth rate recorded in the United States, however, rests on a surge in net exports and business inventories, which in all likelihood will be soon reversed; growth in consumer spending and non-residential fixed investment, on the other hand, was much slower than in preceding quarters. The fading effect of the U.S. fiscal stimulus of 2018, trade policy disputes and the related uncertainty for businesses and government policies are two factors that have weighed on global growth in recent quarters.

Policy adjusted somewhat to the softer momentum of activity that became apparent in the latter part of 2018. The Chinese authorities have implemented modest fiscal and monetary stimulus measures in recent months. In light of recorded slower growth, persistently subdued inflation and considerable trade uncertainty, monetary policy in large advanced economies has lately shifted, perhaps temporarily, toward a more patient stance regarding the normalization of interest rates. The Federal Reserve has refrained from raising its interest rate after the December 2018 hike of 25 basis points and in March signaled a pause in its interest rate increases for the remainder of 2019.

This signal was only a guide, however, as monetary policy remains “data dependent” (i.e. subject to change in light of new data, revised forecasts and changing risks). Likewise, the European Central Bank (ECB) announced in March that it further postponed a rise in interest rates to at least the end of this year. As investors reassessed the impact of trade uncertainty, U.S. bond yields dropped.

Excluding volatile elements, inflation in advanced economies has been stable or declining during the first quarter. In the U.S., core consumption expenditure (PCE) inflation was stable at 1.6% in the February to April period after declining from 2.0% in December 2018. Moreover, hourly earnings in the U.S. grew at an average annualized rate of only 2.6% in the first four months of 2019 despite unemployment rates at 4.0% or less since the spring of 2018. As at March 2019, core Consumer Price Index (CPI) was 0.8% in the euro area and 0.3% in Japan.

West Texas Intermediate (WTI) oil prices have been very volatile since late October 2018, falling from a relatively stable US$70 in the May–October period to about US$45 at the end of 2018, before rising to nearly US$65 by mid-April 2019, and then receding to below US$60 by the end of May. The initial fall in prices mostly reflected U.S. waivers on imports of Iranian oil and a large increase in global production, notably shale oil in the United States, but it also reflected weakening global growth toward the end of the year. The subsequent recovery stemmed from production cuts by Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC countries and from unplanned outages (e.g., Russian pipeline to Europe). Meanwhile, the price discount to WTI on Western Canada Select oil has shrunk from a record US$50 in October 2018 to a more normal US$15 in May 2019. Contributing to this reduced discount were production cuts totaling 325,000 barrels a day mandated by the Alberta government in January, due to be curtailed to 175,000 barrels a day in June, and 95,000 barrels a day by December.

Global Economic Outlook
We continue to believe that businesses should base their plans on projected 3.3% annual global growth over the next three years (i.e., growth near potential but somewhat weaker than the above-potential growth of 3.7% in both 2017 and 2018). In China further rebalancing of the economy and trade restrictions and uncertainties would slow growth, but only gradually overall as easing of fiscal and monetary policies would provide an offset. In the United States the fading impetus of the end-of-2017 tax and fiscal stimulus, combined with trade restrictions and uncertainties, would contribute to reduce the unsustainably high growth rates of 2017 and 2018 to the potential rate. Monetary policy should remain accommodative.



Much as in our Bennett Jones Fall 2018 Outlook, we project the world economy to grow at about its potential rate of 3.3% over the next three years (Table 1.1). This is significantly slower than the 3.7% pace recorded in 2017 and 2018 when advanced economies were growing faster than potential and economic slack was rapidly absorbed. The projected slowdown largely originates in the advanced economies, which now operate at or near capacity, and to a lesser extent in China. Going forward, potential growth in the advanced economies is expected to be held back by a continuation of the modest labour productivity growth experienced in the last several years and by the negative impact of population aging on labour force growth.1 Meanwhile, aggregate demand growth in the advanced economies will be driven down to its lower potential rate primarily due to the run-off of the effects of the 2018 U.S. fiscal policy stimulus, and the negative effects of past normalization of U.S. monetary policy, and past appreciation of the U.S. dollar. While there will be some drag exerted in the short run by U.S. and Chinese tariff increases through their effects on trade and domestic demand, we look through these short-run effects and assume that there will be no major ongoing disruptions to global trade volumes. The global slowing nevertheless will likely be accentuated by ongoing political issues in Europe.


We do not think that the known global economic and financial headwinds are sufficiently severe in and of themselves to cause a recession in advanced economies over the next couple of years. In China, expansionary fiscal and monetary policies are likely to be used to support domestic growth, with positive spillovers on global growth and commodity prices. Central banks in advanced economies have indicated they will show flexibility in the path to normalization, as long as economic prospects remain highly uncertain and inflation subdued. Moreover, fiscal policy is likely to move in a more expansionary direction in some advanced economies, providing further offset to trade and other headwinds.


As in our previous outlooks, we assume that the WTI oil price will fluctuate around US$60-65 per barrel in the short term. For planning purposes we think it is useful to assume that world oil supply will adjust to changes in demand over time so as to keep prices a little over US$60 on average. However, we anticipate much volatility around that level in reaction to industry news, geopolitical developments, revised economic forecasts, and delayed adjustment of oil supply to changes in demand. Regarding other commodity prices taken as a whole, we adhere to the International Monetary Fund (IMF) view of a subdued outlook in the short term.

The U.S.-China trade dispute has intensified lately: on May 10, the U.S. administration increased the 10.0% tariff on $200 billion worth of imports from China to 25.0% and signaled its intent to impose a 25.0% tariff on all remaining U.S. imports from China, about $300 billion. China retaliated by announcing it would raise tariffs up to 25.0% for most of the goods on its $60-billion list starting June 1, 2019. As a first approximation, these tariff increases, if maintained, might reduce the level of real U.S. GDP by 0.3–0.4% by the end of 2020; these effects are already incorporated in our outlook. The impact on China’s GDP is estimated to be larger than on the U.S. GDP. We have not incorporated the impact of any further trade actions in our projection and make no allowance either for the deleterious effects of these further actions on business and consumer confidence or for any offsetting easing in monetary or fiscal policy in reaction to these actions.

Our projection assumes that the United States and China will conclude some form of agreement before the U.S. presidential election, without in the meantime triggering a full-blown trade war. Their economies will be impacted in the next several quarters by the effects of the implemented tariff increases but, as discussed below, macro policies will provide an offset and smooth the path toward potential growth by late 2020.

Besides the U.S.-China trade dispute, the U.S. administration has threatened to impose a 25.0% tariff on imported cars and parts from the European Union (EU) and Japan on national security grounds. In May, President Trump decided to wait up to six months before determining to impose such a tariff, which would have material consequences not only for the EU and Japan, but also for the United States. Our projection is based on our view that this tariff is unlikely to be applied in the future.
Similarly, we assume that the U.S. will not actually implement Mr. Trump’s recent threat to raise tariffs on Mexico in response to the migration issue.

U.S. growth is projected to decelerate from an unsustainable 2.9% rate in 2018 to 2.5% in 2019, 1.9% in 2020 and 1.8% in 2021. Growth in aggregate demand falls to its potential rate of about 1.8% as the economy adjusts to: (i) the negative impact of increased trade barriers through trade, investment and cost increases; (ii) a run-off of the effect of the recent fiscal stimulus; (iii) past increases in interest rates; and (iv) past appreciation of the U.S. dollar. Exports, non-residential business investment and household consumption should all contribute to the slowdown. In the remainder of 2019, inventory investment is likely to decline and dampen growth.

U.S. price inflation has remained surprisingly tame so far in 2019 in the face of a very tight labour market and earlier tariff increases on imports from China, a development that the Federal Reserve attributes at least in part to temporary factors. While we still subscribe to the Federal Reserve’s view that inflationary pressures will soon materialize, we expect that U.S. inflation will remain contained in the short term as the economy decelerates markedly and inflation expectations centered on the 2.0% target hold firm. Barring the implementation of the further tariff increases currently contemplated by the U.S. administration, cost-push inflation from tariff increases should also remain limited. Thus, a burst of inflation has a low probability of occurring later in 2019. Correspondingly, we attach a low probability to a rise of more than 25 or 50 basis points in the U.S. policy interest rate over the projection horizon. The recent escalation of the trade dispute with China and persisting subdued inflation leave little room for interest rate increases in 2019, whereas we anticipated a 100 basis points increase in our fall outlook. In contrast with the recent prevailing view reflected in financial markets, however, we do not expect that the Federal Reserve will significantly reduce its policy rate as the unemployment rate is expected to remain low, and growth to remain above or at potential going forward. For planning purposes, businesses should assume a very modest increase in Treasury bond rates by 2021.

Risks to the Global Outlook

We see three possible upside risks to our projection.

First, growth in China could be somewhat stronger than we envisage if authorities show more readiness than we expect in keeping growth at or close to their official target of 6.5%, instead of letting it drift lower. This would have positive spillovers on global growth and commodity prices.

Second, we see the risk of a burst of inflation in 2019 as low and therefore the risk of a significant escalation of U.S. interest rates as equally low. In fact, U.S. inflation may remain significantly below target instead of eventually responding to demand pressures and cost increases as we expect in our projection. This could incite the Federal Reserve to reverse monetary policy normalization, thereby providing more support to growth.

Third, discretionary U.S. fiscal policy may turn expansionary in advance of the presidential election in 2020 and keep growth above instead of at potential for a short while.

There are four specific downside risks to our short-term outlook that we want to flag besides geopolitical risks related to Arab countries, Russia, or Asia (the Korean Peninsula and South China Seas).

The first and biggest downside risk is that the U.S.-China trade dispute degenerates into a full-blown trade war. The hit to global growth would be considerable especially to the extent that uncertainty soars, confidence plummets, and a major sell-off in markets tightens financial conditions. In addition, there remains the risk that the U.S. administration may decide to actually impose a 25.0% tariff on imported cars and parts from the European Union and Japan at the end of the current six-month grace period. This would have a material effect on the three economies.

Second, there is a risk that the United States will carry out Trump’s threat to place a tariff on imports from Mexico if Mexico does not take action to restrain migration to the United States.

Third, a no-deal Brexit may well emerge instead of a soft Brexit as assumed. This would disrupt supply chains and raise trade costs with potentially large and persistent negative impacts on the U.K. and EU economies.

Finally, it is hard to judge how far a conflict between the U.S. and Iran could go beyond the recent U.S. decision to end import waivers for Iranian oil. The risk of a temporary escalation of world oil prices and consequent negative effect on global growth in the short term cannot be ruled out.

Section II: International Trade

Overview
The overall situation in international trade remains similar to what we described in our Bennett Jones Fall 2018 Economic Outlook. Uncertainty continues to be the most apt description of what we see. However, there have been a few positive developments which are described in our report. At the global level, the scene is dominated by the U.S.-China trade frictions which have intensified in recent weeks. Efforts continue between these two countries to resolve their differences. However, any honest appraisal needs to recognize that this trade feud is part of a larger strategic struggle over which country will be the dominant power in the 21st century. There may be a temporary respite in the trade spat but it almost certainly will not resolve the larger issue and tensions will remain at an elevated level for a considerable period of time. Indeed, there are signs that the Trump administration may be doubling down on dealing with China by removing irritants with key allies. The decision by President Trump to delay for six months, a final determination on whether to apply duties on automobile imports into the United States for alleged national security reasons under Section 232, will take some of the heat out of U.S.-EU and U.S.-Japan relations. Similarly, the agreement with Canada and Mexico to terminate the Section 232 tariffs on steel and aluminum improves U.S. relations with its two North American partners.

The Canada-United States-Mexico Agreement (CUSMA),2 the president’s signature trade policy success, awaits action by Congress. There is a lack of enthusiasm for the agreement but both Democrats and Republicans have been careful to leave the door open to eventual ratification. For the administration securing ratification of this agreement is critical. In testimony in February to the Ways and Means Committee of the House of Representatives USTR Lighthizer said “there is no trade program in the United States if we don’t pass the [CUSMA]”.

Meanwhile, push back in Congress and the country to the president’s aggressive trade policy continues to build as it becomes apparent that President Trump’s March 2018 tweet that “trade wars are good, and easy to win” is not an accurate reflection of reality. Perhaps we are witnessing an evolution in U.S. trade policy to prioritize objectives and to try actually working with partners.

The president’s withdrawal from the Trans-Pacific Partnership agreement (TPP), and the lack of progress in engaging in free trade negotiations with the EU means American exporters are suffering from self-inflicted Least Favoured Nation treatment. Ambassador Lighthizer has now engaged in free trade negotiations with Japan but following President Trump’s trip to Japan it is now clear a deal cannot be concluded before August at the earliest. Time is running out for the administration to conclude major trade agreements before the 2020 election, particularly with an agenda which already includes getting the United States-Mexico-Canada-Agreement (USMCA) through Congress and striking a trade deal with China. It should also be noted that the Trade Promotion Authority, by which Congress delegated authority to the president to negotiate trade agreements, expires on July 1, 2021, just five months after the next presidential inauguration. This picture is deeply worrying for world-class American businesses including agricultural producers who are prominent in Trump’s base.

At the WTO the United States continues to maintain its refusal to consider the appointment of new members to the WTO Appellate Body, but their overall approach in the WTO appears less strident than a year ago. The United States recently scored a major victory in the WTO when a panel ruled that Chinese domestic support for wheat and rice exceeded what China is allowed to do by nearly $100 billion per year.3The panel report was subsequently adopted by the WTO Dispute Settlement Body when neither side appealed the ruling to the Appellate Body. In January, 76 WTO members announced their intention to commence WTO negotiations on trade-related aspects of electronic commerce.4 There is growing evidence that many WTO members are interested in making progress on WTO reform. Jim Carr, Minister of International Trade Diversification, convened the third ministerial meeting of the Ottawa Group on WTO reform in the week of May 20 on the margins of the Organisation for Economic Co-operation and Development (OECD) Ministerial Council meeting in Paris. On May 13 and 14 in New Delhi, India, convened a meeting of ministers from 16 developing and 6 least developed countries to discuss WTO reform issues. China has announced its intention to host a similar conference in the fall of 2019 in China and has circulated a paper on WTO reform. The last time there was such ministerial involvement in discussing multilateral trade issues was in the 1980s, in the years preceding the launch of the Uruguay Round of General Agreement on Tariffs and Trade (GATT) negotiations which led to the formation of the WTO.

A strong WTO is of great importance to Canada because it establishes an international body of rules that provides, and usually ensures, equal treatment for small, medium and large countries. Without the WTO, and with major powers focused on managing their own problems, Canada would be faced with a very uncertain trading environment. It is in Canada’s national interest to work with other small- and medium-sized countries to contribute to a revitalization of the WTO. If the WTO unraveled, we would find out quickly just how important it is for Canadian interests. There are many rules such as those dealing with anti-dumping, countervailing duties and subsidies that are only dealt with at the WTO. All the bilateral and plurilateral trade agreements are grounded in the foundations of the WTO. Furthermore, WTO dispute settlement has been vital in protecting Canadian rights in a way that bilateral dispute settlement arrangements never have.

For Canada, stabilizing trade relations within North America remains job one. The fate of CUSMA lies in the hands of the American Congress because the prospects for ratification are much greater in Canada and Mexico. The agreement announced on May 17 to remove American duties on steel and aluminum imports from Canada and Mexico, creates a more positive environment in all three countries for considering the ratification of the CUSMA.

The second most important thing for Canada is to take advantage of the preferential access we now enjoy as a result of the coming into force of the Comprehensive and Progressive Agreement on Trans-Pacific Partnership (CPTPP) and the Comprehensive Economic and Trade Agreement (CETA) with the EU. With the Americans having counted themselves out, this is a once in a century opportunity to make inroads into these markets and to consolidate our position.

Third, we need to take stock of our relationship with China and how best to manage it going forward. Clearly that will not be easy as recent history has demonstrated. We need to conduct a hard-nosed assessment of the challenges in China and it should start with an appraisal of Chinese economic fundamentals that needs to underpin the subsequent policy analysis.

Overall, we believe that Canada has already negotiated trade agreements that provide major opportunities for Canadian business and producers. The government should now concentrate its resources on helping the private sector take advantage of these opportunities rather than pursue the negotiation of additional trade agreements with countries whose markets offer relatively fewer opportunities.

Trump's Trade Policy in Year Three
Donald Trump boasts of the successes of his America First trade policy but it is hard to see where there are any real gains—unless the real objective is decoupling of the U.S. and Chinese economies and simultaneously isolating the United States from its traditional trade partners. His biggest success is the renegotiation of the NAFTA, but that cannot be chalked up as a victory until he secures Congressional approval. Of course, he can also tout the tweaking of the trade agreement with South Korea as a success, but that hardly constitutes a remaking of the American trade relationship with the world.

His approach to rebalancing the relationship with China is not going well. The threats continue as Trump’s tweets make clear. On May 5, he tweeted:

“For 10 months, China has been paying Tariffs to the USA of 25% on 50 Billion Dollars of High Tech, and 10% on 200 Billion Dollars of other goods. These payments are partially responsible for our great economic results. The 10% will go up to 25% on Friday. 325 Billions Dollars....

....of additional goods sent to us by China remain untaxed, but will be shortly, at a rate of 25%. The Tariffs paid to the USA have had little impact on product cost, mostly borne by China. The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!”

This approach would effectively penalize all of China’s exports to the United States and has already incurred retaliation from China.
President Trump has noted that in a tariff war the United States has more ammunition because they have a large trade deficit with China. However, there are other economic retaliatory tools the Chinese government can use including:

1. tightening the screws on American companies operating in China through the use of various regulatory measures;
2. making it harder for American businesspeople to travel to China;
3. reducing trade barriers and other restrictions for non-American companies and investors to weaken the competitive position of American firms in the Chinese market place; and
4. encouraging the Chinese people to boycott American products.

On May 15, President Donald Trump signed the “Executive Order on Securing the Information and Communications Technology and Services Supply Chain”.5 The Order finds “that foreign adversaries are increasingly creating and exploiting vulnerabilities in information and communications technology and services.” It authorizes U.S. government agencies to take a wide range of actions to thwart this threat. The Order makes it very difficult for Huawei to conduct business with any U.S. entity. This action may encourage the Chinese to think of other ways to hit back.

American tariffs on steel and aluminum have resulted in a self-inflicted injury rather than a rejuvenation of the American economy.

The promised bilateral agreements with countries like Japan after withdrawal from the TPP have yet to be realized.

A free trade agreement with the EU seems a long distance off.

If this situation is successful, do not tell the beleaguered farmers and other producers suffering from higher import costs and reduced export opportunities. In Section I of this outlook, we consider the effect of the U.S.-China trade dispute on GDP in the United States and China. Our estimates are that the effect would be in the order of 0.3 to 0.8% of GDP in the United States depending on how far Trump goes in imposing more tariffs. However, the effects will not be spread evenly with, for instance, farmers in Trump’s base being impacted much more significantly.


World Trade Organization
Amidst significant trade tensions and very challenging times for global trade, there is reason for muted optimism about the WTO and the rules-based trading system that it promotes. This is because WTO members are actively pursuing a WTO reform agenda so that the organization will be better placed to respond to the world economy as it undergoes a technological transformation. Members have also agreed to commence negotiations on trade-related aspects of electronic commerce, an increasingly important aspect of today’s economy but until now, a subject-area on which members could not agree to focus attention. Finally, although the deadlock in appointing new judges to the WTO Appellate Body has not been resolved, members continue to rely regularly on the WTO dispute settlement mechanism to resolve trade disputes, a testament to the continuing confidence members have that the mechanism is capable of providing fair and impartial resolutions to serious trade irritants.


WTO Reform Agenda
The WTO has embarked on a critical reform agenda as it approaches its 25th anniversary next year. There is no single impetus for this reform movement—several factors likely contributed. These include technological advances that are revolutionizing the way we trade: WTO rules must be updated to address new areas, such as digital trade. In addition, perceptions that WTO rules are inadequate to resolve recent trade tensions between the United States and China have prompted some members to work on crafting new disciplines on non-market oriented policies and practices. WTO negotiations on eliminating harmful fisheries subsidies that lead to overcapacity and overfishing, set to conclude at the end of this year, respond at least in part to the United Nations (UN) Sustainable Development Goals. Finally, the United States’ continued refusal to permit appointments to the WTO Appellate Body has frustrated a number of WTO members but it has also led several of them to propose amendments to the system with a view to responding to what they consider are legitimate U.S. concerns.

As reported in our fall economic update, Canadian Minister for International Trade Diversification, Jim Carr, established what has become known as the Ottawa Group, 13 WTO members working to strengthen and modernize the WTO. Following an inaugural meeting held in Ottawa last October, the group has met on two more occasions—in January in Davos, and in May in Paris. The group’s current focus is on improving the deliberative function of WTO bodies. Australia, Brazil, Singapore and Switzerland are leading reviews on four WTO bodies (the Council for Trade in Services, the Sanitary and Phytosanitary Measures Committee, the Technical Barriers to Trade Committee and the Rules of Origin Committee), while Norway is coordinating efforts on developing country issues as they affect WTO reform.
Reform efforts are also underway outside the Ottawa Group process. As mentioned above, India recently hosted an informal Ministerial meeting attended by several developing country ministers, and China will host a Ministerial-level meeting later this year. The EU, Japan and the United States are collaborating to develop rules on state support of industries (industrial subsidies) and state-owned enterprises. Several WTO members have distributed papers outlining overall positions on reform. For example, Canada, China and the European Union have each issued concept papers touching on several areas, including on rule-making procedures (e.g., consensus, multilateral, plurilateral), improving the capacity and opportunity for deliberation, enhancing opportunities within WTO committees to address specific trade concerns, and mechanisms to take provisional remedies in cases of urgency. Fifty-nine members (counting the European Union as 28) have contributed reform proposals touching on three main themes: (i) procedures to strengthen notification requirements so that there is more transparency when members adopt subsidies, domestic support and other measures; (ii) development issues, including the relevance of special and differential treatment in favour of developing members to promote development and whether the binary construct of developed versus developing status is outdated and undermines WTO negotiations; and (iii) the functioning of the Appellate Body, addressing a variety of concerns raised by the United States during several meetings of the WTO Dispute Settlement Body, including judicial overreach, advisory opinions, Appellate Body reports as precedent, treatment of municipal law as fact and respect for timelines.

Appellate Body reform is the subject of most of the proposals. This reflects the urgency to find a solution to the impasse on appointing judges to the Appellate Body to replace those whose terms have expired. If no new appointments are made by December of this year, the Appellate Body will not have the requisite three members to hear an appeal. Earlier this year, no doubt in recognition of the importance of finding a resolution to the impasse, the WTO General Council, the highest-level WTO governing body composed of all 164 WTO members, appointed Ambassador David Walker of New Zealand to facilitate discussions on Appellate Body reform.

WTO reform is also receiving a lot of high-level attention outside its corridors. United Nations Secretary General Antonio Guterres addressed the organization on May 10 and underscored the importance of revitalizing multilateral trade cooperation and the need to “buttress this unique institution … that has safeguarded international trading relationships over the past 70 years.”6 In December 2018, G-20 leaders observed that the WTO system is “currently falling short of its objectives” and supported “the necessary reform of the WTO to improve its functioning.”7 Similarly, the Asia-Pacific Economic Cooperation (APEC) Ministers responsible for trade agreed in May 2019 that “action is necessary to improve [the WTO’s] functioning.”8

Heightened activity on WTO reform does not guarantee quick or certain results. Members’ perspectives on development issues, for example, are far apart, and progress on Appellate Body reform is far from guaranteed. However, the fact that real and significant reform discussions are underway among WTO members and that the UN, the G20 and APEC support WTO reform efforts illustrates what the WTO Director-General recently described as “a real shift in tone” and a genuine opportunity to update the global trading system.9 This shift is a positive development for the WTO, and for the rules-based trading system.
Electronic Commerce

Negotiations on trade-related aspects of electronic commerce were launched earlier this year. Seventy-seven WTO members, including Canada, the United States, China, Japan, EU, Australia, Brazil, Singapore, Russia and several developing countries, are participating in the discussions. Issues raised include whether or not to continue a long-standing moratorium on customs duties on electronic transmissions, facilitation of e-commerce transactions, paperless trading and e-payments. Discussions also address issues related to market access for goods and services, data flows across borders, protection of consumer and personal data, digital security and the need to address the digital divide. The Canadian government sought input from interested stakeholders regarding these and other subjects that could form part of the discussions, which will inform the development of its own position.10

Although e-commerce has long been on the WTO agenda, progress was blocked until December 2017, when 71 members announced a joint initiative to initiate exploratory work toward future negotiations. Talks are progressing and include written proposals from the United States, EU (including draft text) and China. Positions differ in significant ways, but unlike in the past, this has not resulted in a stalemate on moving forward. This is significant, not only because technological advances are revolutionizing the way we trade and therefore WTO rules must be updated to deal with them. It also demonstrates that members are willing and able to proceed with negotiations on a plurilateral basis and that the consensus model that hampered many efforts in the past may no longer hold sway. This, too, is a positive development for the WTO, and for the rules-based trading system.


Conclusion
We consider that while the outlook for global trade remains uncertain, there are some developments which suggest that the fears of global trade disruption evident in the current behaviour of financial markets will prove to be overblown. In particular, we see a few positive developments which suggest a slight evolution in the trade policy approach of the Trump administration. The Trump administration has continued to focus on China but has made an effort to shore up its trade relations with traditional allies. Perhaps the difficulties faced by farmers and others with the effects on their livelihood of trade retaliation have played a role. These developments also underline once again the value of advocacy efforts that reach out to our natural allies in the United States.

Section III: Canadian Outlook

Recent Developments
Growth in Canada was only 0.4% at an annual rate in both 2018Q4 and 2019Q1, its slowest pace since 2016Q2. In 2019Q1, growth continued to be depressed by weakening housing and goods exports but household consumption and business non-residential fixed investment rose sharply. Moreover, there was a substantial rebound of real GDP growth in March, with gains widespread across industrial sectors.

Core CPI inflation has continued to be at, or close to, 2.0% in the first four months of 2019, consistent with an economy not far from capacity and inflation expectations solidly anchored at 2.0%. Various indicators of average wage rate showed only modest yearly growth rates at the beginning of 2019. The Bank of Canada has kept its policy interest rate at 1.75% since October 2018. On a monthly basis, the Canadian dollar has remained near 75 U.S. cents since mid-2018.
Prospects to 2021

The profile of Canadian growth to 2021 has changed since our fall outlook. Whereas previously, Canadian growth was projected to gradually slow toward its potential rate starting in 2019, in the current projection growth falls below potential in 2019, but rises slightly above potential in 2020 and 2021. Thus real GDP growth decelerates to 1.3% in 2019, from 1.8% in 2018, before rebounding to 1.9% in both 2020 and 2021 (Table 1.1).

Many economies experienced a slowdown in 2018Q4 against a background of high trade uncertainty, tighter financial conditions and political headwinds, but in Canada the deceleration was more severe than elsewhere primarily because of a substantial drop in the price of Western Canadian oil. This shock has depressed Canadian real national income, employment and investment in the oil and gas sector and related industries and household spending in oil-producing provinces. Excess capacity re-emerged in 2018Q4 and has increased in 2019Q1. From a relatively weak position in early 2019, the Canadian economy is expected to gradually gain momentum, leading to above-potential growth by 2020. To a considerable extent the projected gain in momentum stems from a fading of the negative effects that have weighted on the economy recently. Thus, to quote the Bank of Canada in its April 2019 Monetary Policy Report (p.9), “The dampening effects on growth of low oil prices, changes to housing policies and the 2017-18 increases in borrowing rates should dissipate over 2019”. This would contribute to a stabilization of housing and a firming of household consumption. Growth in consumption is nevertheless expected to be moderate over the short term.

Besides the fading of negative factors, a number of positive developments should enhance Canadian growth going forward. Business investment outside the oil and gas sector would benefit from new tax changes by the federal, Ontario and Québec governments. Healthy growth in U.S. activity, rising production capacity in Canada, the assumed ratification of CUSMA, which would reduce trade uncertainty, and the projected alleviation of transportation constraint on shipments of Western Canadian oil through rail and pipeline expansion (assumed to be completed by the end of 2021), would provide support to growth in exports and investment. Exports of travel and commercial services should continue to grow at a robust pace.

Taken together the 2019 budgets (before reserve) of the federal, Québec, Ontario and B.C. governments provide no impulse to growth, either positive or negative, in 2019 (see Section IV, Table 4.1). Fiscal consolidation gives rise to negative impulses to growth of about 0.3% of GDP each year from 2020 to 2023. With the additional fiscal restraint to be expected in the next Alberta budget, the negative impulse to Canadian growth will probably reach 0.4% of Canadian GDP each year over the next four years, which means that Canadian real GDP growth could be cut by 0.2% to 0.4% in each of those years.

The Bank of Canada has made clear that monetary policy is “data dependent”. Should the Canadian economy unfold as we and the Bank of Canada project,15 then a cautious Bank of Canada would continue to keep its policy rate steady at 1.75% but move the policy rate toward 2.25%, the bottom of the neutral rate range, by 2021 as above-potential growth re-emerges. Raising the policy rate to its neutral level (2.25% to 3.25%)16 would be consistent with keeping the economy at potential and inflation on target, going into the medium term.

Our assumptions concerning oil prices, growth and policy interest rates in the United States and Canada lead us to expect that the Canadian dollar will continue to move in a range near 75 U.S. cents in 2019. As in our fall outlook, the center of the band will tend to rise in the next two years to perhaps 78 U.S. cents by 2021. The expected expansion of crude oil exports as production and transportation capacities increase would provide support to the Canadian dollar.


Risks to the Canadian Outlook
The risks to our global outlook that were identified at the end of Section I represent risks to our Canadian outlook as well. A full-blown trade war between the United States and China would have grave consequences for global growth, trade and commodity prices, with important negative repercussions on Canada (see Section II on trade). Adverse global trade developments represent the biggest downside risk for the Canadian outlook. Bilateral issues with the United States and China also present some downside risk. However, stronger-than-expected U.S. growth would provide some offsetting upside risk to Canadian growth.

Our Canadian outlook is also at risk due to factors that apply more particularly to Canada. Housing may experience more weakness in the near term than implied by the soft landing implicit in our projection. This being said, downward price correction in large metropolitan markets would help improve housing affordability. Another risk is that the Western Canadian oil price may deviate more dramatically and persistently from the projected average price, thereby posing risks in either direction to Canadian growth. A related but negative risk to growth, particularly in Western Canada, would be that the coming on stream by 2021 of one or more of the three planned oil pipeline additions (Enbridge Line 3 replacement, Trans Mountain expansion and Keystone XL) be delayed, if not canceled. On the other hand, we may underestimate the stimulus to growth that the construction and operation of these pipelines would provide over the projection horizon. A final risk is the failure of the United States to ratify the USMCA followed by a possible break-up of NAFTA, contrary to our expectations. Canadian exports and investment would suffer as a result.


Section IV: A Macro Perspective on 2019 Budgets
In this section we provide a brief analysis of 2019 budgets in Canada from a macro perspective. Earlier this year the federal, Québec, Ontario and B.C. governments released their 2019 budgets, which extend to 2021-22 for B.C. and 2023-24 for the others. The Alberta government has yet to come up with a new budget in 2019.
We begin our analysis by looking at the “consolidated” 2019 budget of the federal, Québec, Ontario and B.C. governments, for which we have hard data. Among other things, we assess how restrictive or stimulative the consolidated fiscal policy of these governments could be to Canadian economic growth over the next five years. We then analyze the 2019 budgetary projections of each of the four large jurisdictions separately and finish by discussing fiscal prospects for Alberta in anticipation of the next budget.

"Consolidated” 2019 Budgets
The 2019 budgets largely reflect the view that the United States and Canadian economies start growing at roughly their potential rates in the short term. Interest rates and bond yields are projected to rise slowly from current levels; the Canadian dollar is expected to strengthen steadily from near 75 U.S. cents in 2019 to 80 U.S. cents in 2023; and the WTI oil price is expected to rise from slightly below US$60 in 2019 to around US$65 in 2023. There are some differences in the profiles of these variables across the four 2019 budgets but, by and large, they are relatively minor.

Taken together, the 2019 budgets of the federal, Québec, Ontario and B.C. governments project own-source revenues to grow rather slowly in 2019-20 after an unexpectedly strong advance in 2018-19 (except in Ontario) and then to increase at nearly the same pace as Canadian nominal GDP over the next four years (Table 4.1). Program expenses increase at 2.5% per year through to 2023-24, a sharp slowdown from the accelerated pace of 2017-18 and 2018-19. This downshift can be found in all the four jurisdictions but is largest in Ontario. In contrast, public debt charges steadily increase relative to own-source revenue over the next five years even as net debt declines relative to Canadian GDP: this is due to a significant rise in the interest cost of new borrowing relative to that of maturing debt. The overall budget deficit before reserve reaches a peak of $23 billion or 1.0% of GDP in 2019-20 and steadily shrinks to zero by 2023-24. Net capital investments decline significantly over the next five years reflecting downward trends projected in the federal and Ontario budgets; in Québec and B.C. net capital investments significantly increase from their 2018-19 levels. Shrinking budget deficits and reduced net capital investments lead to a steady decline in the consolidated net debt relative to Canadian GDP.

Section V: Planning Parameters for Canadian Business
Our overall outlook for global economic growth has not much changed from what we presented last fall, although the downside risk of trade disruption has increased. We advise businesses to plan on the assumption that global growth in 2019 will slow to about 3.3% from the strong 3.7% experienced in 2017 and 2018. We expect that the period of slow growth that the world has generally experienced since the last quarter of 2018 is temporary. Despite trade uncertainties, we are optimistic that growth in the second half of this year and into next year will pick up, and that the world economy will operate near potential of 3.3% growth at annual rates. We think that it is appropriate to plan on moderately strong growth to continue in 2020 and 2021, on the assumption that the United States and China will come to some sort of acceptable arrangement as cooler heads prevail.

Our view is that the U.S. economy will grow at the above -potential rate of 2.5% this year, although the risk of trade disruption remains. High levels of employment and consumption will prevail as the stimulative effect of the 2017 tax cuts and expenditure increase continue, albeit at a diminishing rate. U.S. growth is likely to slow to potential of 1.9% in 2020 and 2021. Chinese growth should remain at, or above 6.0%, spurred by stimulative policy. With good global growth, the demand for commodities should grow modestly, and we look for relatively flat commodity prices over the next three years, although with fairly high month-to-month and year-to-year volatility. As we indicated last fall, we think it is appropriate to plan on WTI oil price fluctuating around a trend of US$60-$65 per barrel over the period to the end of 2021.

What has changed significantly from last fall is our view on the trajectory of interest rates. Last fall, we and most economic analysts were of the view that central banks in North America and Europe would continue to raise policy interest rates in 2019 and 2020 to more “neutral levels”. In the face of trade uncertainties, central banks in early 2019, changed their guidance about future tightening. They now say that monetary policy will be “data dependent”, which many analysts and market-watchers have interpreted as indicating reduced rates going forward. Markets have pushed bond rates below overnight rates to produce an inverted yield curve because they assign a high probability to trade disruptions actually significantly reducing growth. As we assign a very much lower probability to trade disruptions weakening growth in 2020 and 2021, we continue to anticipate central banks modestly raising policy interest rates by 2021. We thus anticipate the yield curve to revert to its normal shape by 2021.

Based on the above scenario, we think business should plan on the basis of Canadian growth averaging about 1.3% this year, up from 0.4% at annual rates in the first quarter. Growth in 2020 and 2021 is likely to come in at a little less than 2.0%. On balance, the risks to this outlook are on the downside in 2020. But, with the completion of three important pipelines, there is an upside risk that growth in Western Canada may resume more strongly by the end of 2021 as both volumes and prices of Western Canadian Select (WCS) oil improve. With the global and Canadian outlook above, the Canadian dollar should appreciate mildly to 78 U.S. cents by the end of 2021. Again, assuming the Canadian economy develops as per the above scenario, the Bank of Canada might be expected to raise its policy interest rate to 2.25% by the end of the period.

In closing, we emphasize that these planning parameters are based on our analysis, which attaches a fairly low probability to a major trade dispute disrupting global growth. We think the better judgement is that calmer heads in Washington and Beijing will prevail and, that in the end, some sort of agreement will be reached that will permit business on both sides of the Pacific to invest with reasonable confidence that global supply chains still make economic sense. Similarly, we believe that CUSMA will eventually be approved by Congress, and that there are renewed opportunities for Canadian firms in U.S. markets.

Notes
1. See our Bennett Jones Fall 2016 Outlook for our analysis of “The New Normal” for growth in advanced economies
2. In this report we use the name employed by the Canadian Government which refers to Canada first. In the United States, the acronym is “USMCA” and in Mexico it is “T-MEC (El Tratado entre México, Estados Unidos y Canadá)”. In French it is “ACEUM (Accord Canada-États-Unis-Mexique)”.
3. https://www.reuters.com/article/us-u...-idUSKCN1QH224
4. WTO document WT/L/1056 refers.
5. https://www.whitehouse.gov/president...-supply-chain/
6. António Guterres, “Remarks to Special General Council of the World Trade Organization”, Geneva, May 10, 2019.
7. G20 Leaders’ Declaration: Building Consensus for Fair and Sustainable Development, December 1, 2018, Buenos Aires, Argentina, para. 27.
8. Ministers Responsible for Trade Meeting Joint Statement 2019, May 18, 2019, Vina del Mar, Chile, para. 22.
9. Roberto Azevêdo, Speech to the Peterson Institute, Washington, D.C., April 11, 2019.
10. Canada Gazette, Part 1, Volume 153, Number 4.
11. https://ustr.gov/about-us/policy-off...eal-canada-and
12. https://www.international.gc.ca/trad...ies-moyens.pdf
13. Excerpts from testimony by U.S. Trade Representative Robert Lighthizer before the House Ways & Means Committee on February 27, 2019.
14. See Oilseeds: World Markets and Trade May 2019 published by the Foreign Agricultural Service of the United States Department of Agriculture.
15. See Calgary speech by Carolyn Wilkins, Senior Deputy Governor – May 30, 2019.
16. See T.J. Carter, X.S. Chen and J. Dorich, “The Neutral Rate in Canada: 2019 Update,” Bank of Canada Staff Analytical Note No. 2019-11 (April 2019).
17. It may be useful to recall that net debt is a more comprehensive measure of debt than accumulated deficit. Indeed, net debt results not only from the accumulation of budget deficits but also from the accumulation of net borrowing to finance investments in capital assets. These investments are not reflected in the measured deficits (and accumulated deficits) except through the provision for the amortization of capital in program spending. Both accumulated deficits and net debt are useful measures; provinces tend to focus on net debt in their budget documents whereas the federal government focuses on accumulated deficit.
18. David Dodge and Richard Dion, “Pre-Budget Analysis of Government Finances: 2011-12 to 2022-23”, Bennett Jones, February 2019.
19. Financial Accountability Office of Ontario, Economic and Budget Outlook, Spring 2019, pp. 19-20.

http://icecapassetmanagement.com/wp-...et-Outlook.pdf

https://www.silverdoctors.com/gold/g...tore-of-value/

It’s clear to be bullish about gold prices, but if you’re not comfortable with investing, then at least think about having some gold for a rainy day…

by Simon Popple of Brookville Capital

Gold is not an investment – it’s a store of value

And a medium of exchange….

Before I kick off. Let me be crystal clear about something.

I’m not a doomsayer.

But right now….and remember….investing is all about timing….I think there is less risk to holding gold than not.

Put your prejudices to one side. Think of it as a store of value rather than an investment.

Personally, I like the miners, because of the leverage they offer (more on that later). But you should probably think about having a few gold or silver coins. In the UK they should be CGT free (please check your own tax rules though!) and if you buy them from a reputable dealer, you should be able to sell them back if the wall of worry we’re now facing disappears.

You should be aware that silver attracts VAT (in the UK), so you would have to pay about 20% more than the price of your coin, but if you think about it as insurance rather than investment – it may be something you can live with.

I’m not talking about a major commitment here……just some insurance.

Why do I like the miners?
The gold and silver mining industries are on their knees.
Whilst the bonds, equities and real estate have all been going through the roof, the share price of mining stocks have largely been heading south. Of course, there are a few exceptions, but if you pick out several mining companies, you’ll see that many are close to multi-year lows. Take a look and do your own research. I’d suggest you look at the Australian and Canadian Stock Exchanges where most of them are listed.

Anyway, this is my point.
Many miners having All-in sustainable costs of circa $1,100 per ounce (obviously some are higher and others lower) and the gold price is circa $1,300 per ounce, so that’s profit of $200 per ounce for a sample company.

Let’s say the gold price increases 20%, taking it to $1,560 per ounce. Some way south of the all-time high of $1,895 per ounce in September 2011, then although costs may creep up a bit, at least over the short term, they’re unlikely to move anything like the pace of the gold price.

In this example let’s assume they increase 10%, so we’re talking about a gold price of $1,560 and costs of $1,210 per ounce. A profit of $350 per ounce.

As you can see, in this example, the gold price has gone up by 20% but the profit per ounce has increased from $200 to $350 – that’s a 75% uplift.

Ok I hear you say….but that’s an investment.

I would have to agree.

Clearly you need to be bullish about gold prices, which I am. But if you’re not comfortable with investing, then at least think about having some gold for a rainy day.

Just a small amount of physical gold or silver probably makes some sense. Gold is respected throughout the world for its value and rich history. How many other assets do you know that can make the same claim?

Here are a few other reasons why you may want to think about it…
1) It’s pretty good at holding its value
2) If the Fed pauses their interest hikes the US dollar will probably weaken….normally good for gold
3) Inflation may be on the horizon – gold has a good track record of maintaining purchasing power
4) Geopolitical uncertainty – gold is one of the few “portable global assets:
5) Supply – many people would view us as being at “peak gold” – finding more gold is becoming increasingly difficult. And don’t forget, you can’t print it!
6) Increasing demand – particularly from Central Banks – what do they know that we don’t?
7) Portfolio diversification – it normally has a low correlation to other investments. So makes sense to have a least some in your portfolio

Anyway, I don’t want to bore you. But think about it.
Please take a look at my website www.brookvillecapital.com if you’d like to take a deeper dive

[email protected]
www.brookvillecapital.com

https://www.brookvillecapital.com/

https://www.zerohedge.com/news/2019-...ops+to+zero%29

Authored by Jeffrey Snider via Alhambra Investments,

Perhaps it is very fitting timing. Not quite in the manner of serendipity, more like events matching stupidity. In the annals of the absurd, central bank programs fill out most of the catalog. It is getting harder and harder to describe the level of ridiculousness, the rationalizing already bordering on the sheer lunatic.
And it all derives from just one thing.

Economists start with R*. In reality, R* or R-star is just their way of admitting the economy has never been fixed without accepting blame. Ben Bernanke didn’t announce ZIRP and QE1 by saying the recovery will be stunted because the natural interest rate is going to fall by decree of demographics.

It was the other way around! The recovery came out stunted and now afterward central bankers are claiming demographics are the reason(s). It can’t be anything else, so don’t bother investigating. When QE so thoroughly craps out, what else should we expect from this cult?

Did you know that people living longer, on the whole, is a big economic negative? Neither did I, and I suspect this would be news to not just the current inhabitants of planet Earth but very likely the vast majority of everyone else who has ever lived here. I wish I was making this up:
Williams attributed the issue to two factors: longer life spans and slower population gains that hold back productivity and thus keep the U.S and other developed economies in a low-growth pattern.


The issue he speaks of is, of course, R*. What FRBNY President John Williams doesn’t say, what he is never asked, is why R* curiously seems to have registered its steepest descent, undergoing what amounts to a paradigm shift right around 2008. Since the natural rate is not directly observable, Economists infer it from different reconstructions. The Fed’s New York branch’s estimates are as follows:

https://zh-prod-1cc738ca-7d3b-4a72-b...019-R-star.png


Big collapse at the very same time, we are told, central bankers were heroes courageously saving the system from an even worse fate – that worst fate being a downturn without recovery, a depression. Funny how that happened anyway.

The real conundrum, though, is how freed from the ideological cage of modern Economics we can easily find and appreciate a lot of things which resemble the trajectory of R* in the very places these people tell us not to look:

https://zh-prod-1cc738ca-7d3b-4a72-b...-History_0.png


What all this R* stuff really does is demonstrate that even central bankers are at a loss to explain something they’d rather not explain. It’s why no one ever addresses the elephant in the room: the potential that 2008 wasn’t a recession, that it was a permanent break. How could that be? There’s no way it was Baby Boomers, drug addicts, and Americans living longer all at once at the same time depressed long run growth prospects.

How in the world did anyone think it was a good idea for a branch President to say those words?

And they weren’t even the most ridiculous of the week. Those belonged to Jay Powell. Not his comments about rate cuts, rather why he was in Chicago nervously mentioning the prospect in the first place.

I actually never do this, but this is one time you really should read the whole thing what I’ve written here. If you want to know why we are stuck in this mess, facing the prospects of a nastier Euro$ #4 right now in another experiment proving Milton Friedman’s interest rate fallacy, what the Fed is currently up to is the whole thing.
Right now, “our” central bank is conducting an exhaustive review of its policies in light of how things have turned out.

The condensed version is this: maybe, possibly, perhaps QE wasn’t quite as effective as we thought it would be. The reason? Well, regular everyday folks are too stupid to just accept uncritically how any new and “unconventional” policies work exactly the way we say they do.

Therefore, facing the prospect for more unconventional stuff beyond just QE, by virtue, ironically, of R* and the close proximity to the zero lower bound (now renamed the ELB, or effective lower bound), the way to make these policies effective is, essentially, to stop calling them unconventional and to start treating them like they were just regular operations.


Look, I know it might sound like it but I’m really not making this up. As I wrote:
Monetary policy is something to manage the expectations of consumers and workers. It isn’t actually meant for money dealers. The contradiction is as profound as it is ridiculous…

It is also very simple. Long ago, as I’ve noted on so many occasions, Economists and central bankers realized they were having very serious trouble keeping track even defining modern money. Rather than redoubling their efforts to those ends, they decided that by managing expectations they wouldn’t ever have to. It was a gigantic gamble made upon a huge assumption without much evidence.

The Global Financial Crisis and Great “Recession” were the costs of losing the bet.

There’s your R*, swap spreads, and now Euro$ #4 in a nice, tidy little package. And what are all the world’s bond markets saying right now? Money soon…or else.

https://zh-prod-1cc738ca-7d3b-4a72-b...9-2020-1_0.png


What are the chances of that? It’s a rhetorical question being priced in curves. Clowns you can at least take serious in their dedication to comedy. It is tremendous disservice to compare them to these unserious central bankers.

The one thing that’s at the heart of all this: central banks are not central. For that one realization, everything falls into place.

https://zh-prod-1cc738ca-7d3b-4a72-b...-SLIDE-2_2.png


And it’s exactly why central bankers will further plumb the depths of insanity never more than chasing their tails.

https://www.zerohedge.com/news/2019-...DWu6lkYQ-Qa4SQ

https://zh-prod-1cc738ca-7d3b-4a72-b...?itok=LY4e264-

by Tyler Durden

Sun, 06/09/2019 - 23:30

Authored by Eric Zuesse via Off-Guardian.org,


Every empire is a dictatorship. No nation can be a democracy that’s either heading an empire, or a vassal-state of one. Obviously, in order to be a vassal-state within an empire, that nation is dictated-to by the nation of which it is a colony.

However, even the domestic inhabitants of the colonizing nation cannot be free and living in a democracy, because their services are needed abroad in order to impose the occupying force upon the colony or vassal-nation. This is an important burden upon the ‘citizens’ or actually the subjects of the imperial nation.
Furthermore, they need to finance, via their taxes, this occupying force abroad, to a sufficient extent so as to subdue any resistance by the residents in any colony.

Every empire is imposed, none is really voluntary. Conquest creates an empire, and the constant application of force maintains it.

Every empire is a dictatorship, not only upon its foreign populations (which goes without saying, because otherwise there can’t be any empire), but upon its domestic ones too, upon its own subjects.

Any empire needs weapons-makers, who sell to the government and whose only markets are the imperial government and its vassal-nations or ‘allies’.
By contrast, ’enemy’ nations are ones that the imperial power has placed onto its priority-list of nations that are yet to become conquered.There are two main reasons to conquer a nation.

One is in order to be enabled to extract, from the colony, oil, or gold, or some other valuable commodity.

The other is in order to control it so as to be enabled to use that land as a passageway for exporting, from a vassal-nation, to other nations, that vassal-nation’s products.

International trade is the basis for any empire, and the billionaires who own controlling blocs of stock in a nation’s international corporations are the actual rulers of it, the beneficiaries of empire, the recipients of the wealth that is being extracted from the colonies and from the domestic subjects.

The idea of an empire is that the imperial nation’s rulers, its aristocracy, extract from the colonies their products, and they impose upon their domestic subjects the financial and military burdens of imposing their international dictatorship upon the foreign subjects.

Some authors say that there is a “Deep State” and that it consists of (some undefined elements within) the intelligence services, and of the military, and of the diplomatic corps, of any given dictatorship; but, actually, those employees of the State are merely employees, not the actual governing authority, over that dictatorship.

The actual Deep State are always the aristocrats, themselves, the people who run the revolving door between ‘the private sector’ (the aristocracy’s corporations) and the government.

https://zh-prod-1cc738ca-7d3b-4a72-b...orate-flag.jpg

In former times, many of the aristocrats were themselves governing officials (the titled ‘nobility’), but this is no longer common.

Nowadays, the aristocracy are the individuals who own controlling blocs of stock in international corporations (especially weapons-making firms such as Lockheed Martin and BAE, because the only markets for those corporations are the corporation’s own government and its vassal states or ‘allies’); and such individuals are usually the nation’s billionaires, and, perhaps, a few of the mere centi-millionaires.

A small number, typically less than 100, of these extremely wealthy individuals, are the biggest donors to politicians, and to think tanks, and to other non-profits (these latter being also tax-write-offs to their donors, and so are tax-drains to the general public) that are involved in the formation of the national government’s policies.

Of course, they also are owners of and/or advertisers in the propaganda-media, which sell the aristocracy’s core or most-essential viewpoints to the nation’s subjects in order to persuade those voters to vote only for the aristocracy’s selected candidates and not for any who oppose the aristocracy.

These few, mainly billionaires, are the actual Deep State — the bosses over the dictatorship, the ultimate beneficiaries in any empire.

In order to maintain this system, of international dictatorship or empire, the most essential tool is deceit, of the electorate, by the aristocracy.

The method of control is: the bought agents of the Deep State lie to the public about what their polices will be if they win, in order to be able to win power; and, then, once they have won power, they do the opposite, which is what they have always been paid by the Deep State (the aristocracy) to help them to do.

Thereby, elections aren’t “democratic” but ‘democratic’: they are mere formalities of democracy, without the substance of democracy. All of the well-financed candidates for the top offices are actually the Deep State’s representatives, and virtually none are the representatives of the public, because the voters have been deceived, and were given choices between two or more candidates, none of whom will represent the public if and when elected.
Here are some recent examples of this system — the imperial system, international dictatorship, in action:
During Donald Trump’s Presidential campaign, he said:
The approach of fighting Assad and ISIS simultaneously was madness, and idiocy. They’re fighting each other and yet we’re fighting both of them. You know, we were fighting both of them. I think that our far bigger problem than Assad is ISIS, I’ve always felt that. Assad is, you know I’m not saying Assad is a good man, ’cause he’s not, but our far greater problem is not Assad, it’s ISIS. … I think, you can’t be fighting two people that are fighting each other, and fighting them together. You have to pick one or the other.”


Assad is allied with Russia against the Sauds (who are the chief ally of the U.S. aristocracy), so the U.S. (in accord with a policy that George Herbert Walker Bush had initiated on 24 February 1990 and which has been carried out by all subsequent U.S. Presidents) was determined to overthrow Assad, but Trump said that he was strongly opposed to that policy.


Months before that, Trump had said:
I think Assad is a bad guy, a very bad guy, all right? Lots of people killed. I think we are backing people we have no idea who they are. The rebels, we call them the rebels, the patriotic rebels. We have no idea. A lot of people think, Hugh, that they are ISIS. We have to do one thing at a time. We can’t be fighting ISIS and fighting Assad. Assad is fighting ISIS. He is fighting ISIS. Russia is fighting now ISIS. And Iran is fighting ISIS.

We have to do one thing at a time. We can’t go — and I watched Lindsey Graham, he said, I have been here for 10 years fighting. Well, he will be there with that thinking for another 50 years. He won’t be able to solve the problem. We have to get rid of ISIS first. After we get rid of ISIS, we’ll start thinking about it. But we can’t be fighting Assad. And when you’re fighting Assad, you are fighting Russia, you’re fighting — you’re fighting a lot of different groups. But we can’t be fighting everybody at one time.”

In that same debate (15 December 2015) he also said:
In my opinion, we’ve spent $4 trillion trying to topple various people that frankly, if they were there and if we could’ve spent that $4 trillion in the United States to fix our roads, our bridges, and all of the other problems; our airports and all of the other problems we’ve had, we would’ve been a lot better off.
I can tell you that right now. We have done a tremendous disservice, not only to Middle East, we’ve done a tremendous disservice to humanity. The people that have been killed, the people that have wiped away, and for what?

It’s not like we had victory. It’s a mess. The Middle East is totally destabilized. A total and complete mess. I wish we had the $4 trillion or $5 trillion. I wish it were spent right here in the United States, on our schools, hospitals, roads, airports, and everything else that are all falling apart.”

Did he do that? No. Did he instead intensify what Obama had been trying to do in Syria — overthrow Assad — yes.

As the U.S. President, after having won the 2016 Presidential campaign, has Trump followed through on his criticism there, against the super-hawk, neoconservative, Republican U.S. Senator Lindsey Graham? No. Did he instead encircle himself with precisely such super-hawks, such neoconservatives? Yes.

Did he intensify the overthrow-Assad effort as Graham and those others had advocated? Yes. Did America’s war against Syria succeed? No. Did he constantly lie to the voters? Yes, without a doubt.

Should that be grounds for impeaching him? A prior question to that one is actually: Would a President Mike Pence be any different or maybe even worse than Trump? Yes.

So: what, then, would be achieved by removing Trump from office? Maybe it would actually make things a lot worse. But how likely would the U.S. Senate be to remove Trump from office if the House did impeach Trump?

Two-thirds of the U.S. Senate would need to vote to remove the President in order for a President to be removed after being impeached by the House. A majority of U.S. Senators, 53, are Republicans.

If just 33 of them vote not to convict the President, then Trump won’t be removed. In order to remove him, not only would all 47 of the Democrats and Independents have to vote to convict, but 20 of the 53 Republicans would need to join them. That’s nearly 40% of the Republican Senators. How likely is that? Almost impossible.
What would their voters who had elected them back home think of their doing such a thing? How likely would such Senators face successful re-election challenges that would remove those Senators from office? Would 20 of the 53 be likely to take that personal risk?

Why, then, are so many Democrats in the House pressing for Trump’s impeachment, since Trump’s being forced out of the White House this way is practically impossible and would only install a President Pence, even if it could succeed? Is that Democratic Party initiative anything else than insincere political theater, lying to their own gullible voters, just being phonies who manipulate voters to vote for them instead of who are actually serving them?

Is that what democracy is, now: insincere political theater? Is that “democracy”? America’s voters are trapped, by liars, so it’s instead mere ‘democracy’. It’s just the new form of dictatorship. But it’s actually as ancient as is any empire.

There’s nothing new about this — except one thing: the U.S. regime is aiming to be the ultimate, the last, the final, empire, the ruler over the entire world; so, it is trying especially hard, ‘to defend freedom, democracy and human rights throughout the world’, as Big Brother might say.

Trump’s Democratic predecessor, Barack Obama, was just as evil, and just as insincere, as Trump, but only a far more skillful liar, who deceived his voters to think that he would fight corruption, work to improve relations with Russia, provide a public option in his health-insurance plan, and otherwise work to reduce economic inequality, to improve the economic situation for disadvantaged Americans, and to prosecute banksters.


He abandoned each one of those stated objectives as soon as he won against John McCain, on 4 November 2008, and then yet more when he defeated Mitt Romney in 2012. And aren’t some of those promises the same ones that candidate Trump had also advocated and then abandoned as soon as he too was (s)elected?


THE THREAT TO THE EMPIRE
The heroic fighters for the freedom of everyone in the world are the whistleblowers, who report to the public the corruption and evil that they see perpetrated by their superiors, their bosses, and perpetrated by people who are on the public payroll or otherwise obtaining increased income by virtue of being selected by the government to become government contractors to serve an allegedly public function.

All liars with power hate whistleblowers and want to make special examples of any part of the press that publishes their truths, their facts, their stolen documents. These documents are stolen because that’s the only way for them to become public and thereby known to the voters so that the voters can vote on the basis of truths as in a democracy, instead of be deceived as in a dictatorship.

Even if the truth is stolen from the liars, instead of being kept private (“Confidential”) for them, are the whistleblowers doing wrong to steal the truth from the liars? Or, instead, are the whistleblowers heroes: are they the authentic guardians of democracy and the precariously thin wall that separates democracy from dictatorship?
They are the latter: they are the heroes. Unfortunately, the vast majority of such heroes are also martyrs — martyrs for truth, against lies. Every dictatorship seeks to destroy its whistleblowers. That’s because any whistleblower constitutes a threat to The System — the system of control.


In all of U.S. history, the two Presidents who pursued whistleblowers and their publishers the most relentlessly have been Trump and Obama. The public are fooled to think that this is being done for ’national security’ reasons instead of to hide the government’s crimes and criminality.

However, not a single one of the Democratic Party’s many U.S. Presidential candidates is bringing this issue, of the U.S. government’s many crimes and constant lying, forward as being the central thing that must be criminalized above all else, as constituting “treason.” None of them is proposing legislation saying that it is treason, against the public — against the nation.


Every aristocracy tries to deceive its public in order to control its public; and every aristocracy uses divide-and-rule in order to do this.

But it’s not only to divide the public against each other (such as between Republicans versus Democrats, both of which are actually controlled by the aristocracy), but also to divide between nations, such as between ‘allies’ versus ‘enemies’ — even when a given ‘enemy’ (such as Iraq in 2003) has never threatened, nor invaded, the United States (or whatever the given imperial ‘us’ may happen to be), and thus clearly this was aggressive war and an international war-crime, though unpunished as such.

The public need to fear and hate some ‘enemy’ which is the ‘other’ or ‘alien’, in order not to fear and loathe the aristocracy itself — the actual source of (and winner from) the systemic exploitation, of the public, by the aristocracy.

The pinnacle of the U.S. regime’s totalitarianism is its ceaseless assault against Julian Assange, who is the uber-whistleblower, the strongest protector for whistleblowers, the safest publisher for the evidence that they steal from their employers and from their employers’ government.

He hides the identity of the whistleblowers even at the risk of his own continued existence. Right now, the U.S. regime is raising to a fever-pitch and twisting beyond recognition not only U.S. laws but the U.S. Constitution, so as to impose its will against him. President Trump is supported in this effort by the corrupt U.S. Congress, to either end Assange’s life, or else lock him up for the rest of his heroic life in a dungeon having no communication with the world outside, until he does finally die, in isolation, punishment for his heroic last-ditch fight for the public’s freedom and for democracy — his fight, actually, against our 1984 regime.

What Jesus of Nazareth was locally for the Roman regime in his region, Assange is for the U.S. regime throughout the world: an example to terrify anyone else who might come forth effectively to challenge the Emperor’s authority.

A key country in this operation is Ecuador, which is ruled by the dictator Lenin Moreno, who stole office by lying to the public and pretending to be a progressive who backed his democratically elected predecessor, Rafael Correa, but then as soon as he won power, he reversed Correa’s progressive initiatives, including, above all, his protection of Assange, who had sought refuge in the Ecuadoran Embassy in London.

On 11 April 2019, RT headlined “Who is Lenin Moreno and why did he hand Assange over to British police?” and reported that:
Following his 2017 election, Moreno quickly moved away from his election platform after taking office. He reversed several key pieces of legislation passed under his predecessor which targeted the wealthy and the banks. He also reversed a referendum decision on indefinite re-election while simultaneously blocking any potential for Correa to return.

He effectively purged many of Correa’s appointments to key positions in Ecuador’s judiciary and National Electoral Council via the CPCCS-T council which boasts supra-constitutional powers.

Moreno has also cozied up to the US, with whom Ecuador had a strained relationship under Correa. Following a visit from Vice President Mike Pence in June 2018,

Ecuador bolstered its security cooperation with the US, including major arms deals, training exercises and intelligence sharing.

Following Assange’s arrest Correa, who granted Assange asylum in the first place, described Moreno as the “greatest traitor in Ecuadorian and Latin American history” saying he was guilty of a “crime that humanity will never forget.”


Despite his overwhelming power and influence, however, Moreno and his family are the subject of a sweeping corruption probe in the country, as he faces down accusations of money laundering in offshore accounts and shell companies in Panama, including the INA Investment Corp, which is owned by Moreno’s brother.
Damning images, purportedly hacked from Moreno’s phone, have irreparably damaged both his attempts at establishing himself as an anti-corruption champion as well as his relationship with Assange, whom he accused of coordinating the hacking efforts.


On 14 April 2019, Denis Rogatyuk at The Gray Zone headlined: “Sell Out: How Corruption, Voter Fraud and a Neoliberal Turn Led Ecuador’s Lenin to Give Up Assange Desperate to ingratiate his government with Washington and distract the public from his mounting scandals, Ecuadorian President Lenin Moreno has sacrificed Julian Assange – and his country’s independence”, and he described some of the documentation for the accusations that Moreno is corrupt.

On 12 April 2019, Zero Hedge headlined “Facebook Removes Page Of Ecuador’s Former President On Same Day As Assange’s Arrest”, and opened: “Facebook has unpublished the page of Ecuador’s former president, Rafael Correa, the social media giant confirmed on Thursday, claiming that the popular leftist leader violated the company’s security policies.”

On 16 April 2019, Jonathan Turley bannered “‘He Is Our Property’: The D.C. Establishment Awaits Assange With A Glee And Grudge”, and opened:
They will punish Assange for their sins

The key to prosecuting Assange has always been to punish him without again embarrassing the powerful figures made mockeries by his disclosures. That means to keep him from discussing how the U.S. government concealed alleged war crimes and huge civilian losses, the type of disclosures that were made in the famous Pentagon Papers case. He cannot discuss how Democratic and Republican members either were complicit or incompetent in their oversight. He cannot discuss how the public was lied to about the program.

A glimpse of that artificial scope was seen within minutes of the arrest. CNN brought on its national security analyst, James Clapper, former director of national intelligence. CNN never mentioned that Clapper was accused of perjury in denying the existence of the National Security Agency surveillance program and was personally implicated in the scandal that WikiLeaks triggered.

Clapper was asked directly before Congress, “Does the NSA collect any type of data at all on millions or hundreds of millions of Americans?”
Clapper responded, “No, sir. … Not wittingly.” Later, Clapper said his testimony was “the least untruthful” statement he could make.

That would still make it a lie, of course, but this is Washington and people like Clapper are untouchable.

In the view of the establishment, Assange is the problem.

On 11 April 2019, the YouGov polling organization headlined “53% of Americans say Julian Assange should be extradited to America”.

On 13 April 2019, I headlined “What Public Opinion on Assange Tells Us About the US Government Direction”, and reported the only international poll that had ever been done of opinions about Assange, and its findings demonstrated that, out of the 23 nations which were surveyed, U.S. was the only one where the public are anti-Assange, and that the difference between the U.S. and all of the others was enormous and stark. The report opened:
The only extensive poll of public opinion regarding Julian Assange or Wikileaks was Reuters/Ipsos on 26 April 2011, “WikiLeaks’ Julian Assange is not a criminal: global poll”, and it sampled around a thousand individuals in each of 23 countries — a total of 18,829 respondents.

The Reuters news-report was vague, and not linked to any detailed presentation of the poll-findings, but it did say that “US respondents had a far more critical view” against Wikileaks than in any other country, and that the view by Americans was 69% “believing Assange should be charged and 61 percent opposing WikiLeaks’ mission.” Buried elsewhere on the Web was this detailed presentation of Ipsos’s findings in that poll:
Oppose Wikileaks:
61% US
38% UK
33% Canada
32% Poland
32% Belgium
31% Saudi Arabia
30% Japan
30% France
27% Indonesia
26% Italy
25% Germany
24% Sweden
24% Australia
22% Hungary
22% Brazil
21% Turkey
21% S. Korea
16% Mexico
16% Argentina
15% Spain
15% Russia
15% India
12% S. Africa

Is the US a democracy if the regime is so effective in gripping the minds of its public as to make them hostile to the strongest fighter for their freedom and democracy?

On 13 April 2019, washingtonsblog headlined “4 Myths About Julian Assange DEBUNKED”, and here was one of them:
Myth #2: Assange Will Get a Fair Trial In the US
14-year CIA officer John Kiriakou notes: Assange has been charged in the Eastern District of Virginia — the so-called “Espionage Court.” That is just what many of us have feared. Remember, no national security defendant has ever been found not guilty in the Eastern District of Virginia. The Eastern District is also known as the “rocket docket” for the swiftness with which cases are heard and decided. Not ready to mount a defense? Need more time? Haven’t received all of your discovery? Tough luck. See you in court.

… I have long predicted that Assange would face Judge Leonie Brinkema were he to be charged in the Eastern District. Brinkema handled my case, as well as CIA whistleblower Jeffrey Sterling’s. She also has reserved the Ed Snowden case for herself. Brinkema is a hanging judge.

On 20 May 2019, former British Ambassador Craig Murray (who had quit so that he could blow the whistle) headlined “The Missing Step”and argued that the only chance that Assange now has is if Sweden refuses to extradite Assange to the US in the event that Britain honors the Swedish request to extradite him to Sweden instead of to the US (The decision on that will now probably be made by the US agent Boris Johnson instead of by the regular Tory Theresa May.)

How can it reasonably be denied that the US is, in fact (though not nominally) a dictatorship? All of its allies are thus vassal-nations in its empire. This means acquiescence (if not joining) in some of the US regime’s frequent foreign coups and invasions; and this means their assisting in the spread of the US regime’s control beyond themselves, to include additional other countries.


It reduces the freedom, and the democracy, throughout the world; it spreads the US dictatorship internationally. That is what is evil about what in America is called “neoconservatism” and in other countries is called simply “imperialism.” Under American reign, it is now a spreading curse, a political plague, to peoples throughout the world. Even an American whistleblower about Ukraine who lives in the former Ukraine is being targeted by the US regime.


This is how the freedom of everyone is severely threatened, by the US empire — the most deceitful empire that the world has ever experienced. The martyrs to its lies are the canaries in its coal mine. They are the first to be eliminated.

Looking again at that rank-ordered list of 23 countries, one sees the US and eight of its main allies (or vassal-nations), in order: US, UK, Canada, Poland, Belgium, Saudi Arabia, Japan, France, Indonesia. These are countries where the subjects are already well-controlled by the empire. They already are vassals, and so are ordained as being ‘allies’.

At the opposite end, starting with the most anti-US-regime, are: S. Africa, India, Russia, Spain, Argentina, Mexico, S. Korea, Turkey. These are countries where the subjects are not yet well-controlled by the empire, even though the current government in some of them is trying to change its subjects’ minds so that the country will accept US rule.

Wherever the subjects reject US rule, there exists a strong possibility that the nation will become placed on the US regime’s list of ‘enemies’. Consequently, wherever the residents are the most opposed to US rule, the likelihood of an American coup or invasion is real.

The first step toward a coup or invasion is the imposition of sanctions against the nation. Any such nation that is already subject to them is therefore already in danger. Any such nation that refuses to cooperate with the US regime’s existing sanctions — such as against trading with Russia, China, Iran, or Venezuela — is in danger of becoming itself a US-sanctioned nation, and therefore officially an ‘enemy’.

And this is why freedom and democracy are ending.


Unless and until the US regime itself becomes conquered - either domestically by a second successful American Revolution (this one to eliminate the domestic aristocracy instead of to eliminate a foreign one), or else by a World War III in which the US regime becomes destroyed even worse than the opposing alliance will - the existing insatiable empire will continue to be on the war-path to impose its dictatorship to everyone on this planet.