The peril and the promise

The covid-19 pandemic will accelerate change in the world economy. That brings both opportunity and danger, says Henry Curr

The theory of “black swans” says that unpredictable high impact events play a vastly greater role than most people realise. Long before 2020 scientists feared that a zoonotic respiratory disease might originate in Asia and spread globally. 

But hardly anybody foresaw the consequences. The story told by a casual inspection of most economic data is this: little happened for decades, and then in 2020 covid-19 upended everything.

Before 2020 the most sophisticated modelling suggested that a pandemic comparable to the Spanish flu of 1918 might kill 71m people worldwide and trim 5% off GDP. The death toll from covid-19 seems far lower, but the hit to gdp has been bigger. 

According to IMF forecasts in June, due to be updated after this report went to press, by the end of 2020 world output may be about 8% lower than it would have been without the pandemic. 

Instead of growing by about 3% it will have shrunk by about 5%—the biggest contraction since the second world war. By comparison, in 2009 the “great recession” shrank the world economy by just 0.1%.

The knock-on effects have been seismic. At the employment trough in April, the proportion of American 25- to 54-year-olds in work fell below 70% for the first time in nearly 50 years. In the second quarter one-sixth of young people worldwide lost their jobs. 

Working hours fell by nearly a quarter for the rest, says the International Labour Organisation. In June the World Bank forecast that low- and middle-income economies will shrink this year for the first time in at least 60 years, and 89m people will be pushed into extreme poverty, a rise of 15%. 

The effects of shutting schools for months are likely to persist for decades. And lockdowns have damaged mental health: more than 10% of Americans say they have given serious consideration to suicide.

When China locked down Wuhan in January, it was seen as something only an authoritarian, technologically sophisticated government could do. For a while Britain’s scientists did not consider calling for a lockdown because they assumed it was politically infeasible. 

Yet the readiness of almost all governments to close their economies almost entirely was just one of many surprises. In the rich world covid-19 has led to unprecedented government interventions in labour and capital markets. In Europe’s five largest economies, more than 40m workers were placed on government-funded furlough schemes. 

America boosted unemployment benefits so much that they exceeded the wages they replaced for more than two-thirds of claimants. The Federal Reserve has in effect backstopped the market for American corporate debt; Germany has offered its firms loan guarantees worth nearly a quarter of GDP.

None of this comes cheap. Public borrowing is soaring. In June the imf forecast that the overall gross public-debt-to-GDP ratio of advanced economies would rise from 105% in 2019 to 132% by 2021. 

The rising burden has fostered a new financial activism. Central-bank balance sheets have ballooned as they have created trillions of dollars to soak up government debt, and the European Union is jointly issuing debt at scale for the first time to pay for its recovery fund. Policies of a decade ago, after the financial crisis, were seen as radical at the time but now look paltry by comparison.

At first the response was framed as temporary. “What we’re trying to do is to freeze the economy,” said Peter Hummelgaard, the Danish employment minister, in March. (Denmark can claim to have inspired other furlough schemes.) Experience suggested that rich-world economies could unfreeze quickly after a disaster. 

After Hurricane Katrina ravaged New Orleans in August 2005, unemployment shot up from around 6% to over 15%, but it fell back below 6% by February 2006. And indeed it looks as if, as well as being the deepest recession on record in many countries, this will be one of the shortest. 

The recent decline in American unemployment suggests that the worst of the crisis was mercifully brief.

Yet unlike the situation after a hurricane, there is no fleeing to better economic climes. 

Just as after the financial crisis, this downturn is notable for its breadth as much as its depth. And covid-19 continues to spread. As this report was being written, the seven-day moving average of global infections hit new highs. 

America and Australia had been through two rounds with the virus; France, Spain and Britain were bracing for a second wave; India was on an upward slope; and nobody knew how pervasive covid-19 was in the poorer world. 

Though hopes are high for a vaccine in 2021, it is not certain to prove both safe and effective. Economies could yet be trying to operate around the constraints of social distancing for years to come.

Long-term acceleration

It has indeed become clearer that many changes brought about by covid-19 will be long-lasting. 

This special report argues that the pandemic will strengthen forces that were already acting on the world economy, accelerating changes in trade, technology, finance and economic policy.

Conditions before the pandemic were forged by the three biggest economic shocks of the 21st century: the integration of China into the world trading system, the financial crisis and the rise of the digital economy. As Chinese workers left rural poverty for factories, cheap goods flowed west and financial assets flowed east, helping to create low inflation, low interest rates and lost rich-world manufacturing jobs. 

The financial crisis caused a collapse in demand that further depressed interest rates even as globalisation stalled. The rise of technology contributed to a decline in competition, bumper corporate profits and a fall in the share of national income flowing to workers as superstar firms reaped the rewards of network effects and natural monopolies.

The covid-19 pandemic is a fourth big shock. The collapse in demand greatly exceeds that after the financial crisis. Saving may be elevated for years. Low and even negative interest rates are more likely to last. This will prop up asset prices even as economies are weak. 

Firms are more aware of the risks of supply chains that are both sprawling and fragile; covid-19 will increase the desire to bring them closer to home, and to diversify suppliers. And the pandemic is hastening digitisation. Consumers’ switch from physical retail towards e-commerce has quickened, and they have got used to getting some health-care and education services online.

The share prices of tech giants have soared. Even after a slump in September, the New York Stock Exchange’s “fang+” index of technology stocks had produced a year-to-date return of about 60%. Companies have adapted to remote work with astonishing speed, stepping up investments in technologies that facilitate remote presence.

The pandemic will mark a turning-point in politics and geopolitics as well as economics. 

The world will emerge from 2020 into an era of more intense great-power competition. 

The spread of covid-19 has coincided with, and to an extent exacerbated, escalating tensions between China and America. 

They have got worse than even the most hawkish observer predicted a few years ago. 

Trade disputes, with their strange focus on trade deficits and soyabean purchases, are now part of a broader battle. 

America has lobbied the world to reject Chinese 5g technology, ramped up scrutiny of foreign investors, imposed sanctions to restrict Chinese access to its semiconductor technology and is forcing TikTok, China’s most successful consumer-technology export, to sell itself. 

Chinese investment in America has collapsed. Both countries are diversifying away from each other in trade. The two economies are too integrated to decouple entirely, but they now combine far-reaching economic ties with pervasive mutual suspicion.

For domestic politics in the rich world, the pandemic represents a challenge to the status quo. 

Unlike the financial crisis, this is not Wall Street’s fault. But the juxtaposition of a weak economy with high asset prices that result from low interest rates could provoke public anger, especially if it coincides with unemployment concentrated among poorly paid service-sector workers. 

Low interest rates will make possible substantial prolonged deficit spending. How recessions are fought will change, partly because near-zero interest rates neuter monetary policy, but also because of this year’s experiments with large-scale cash transfers to households. 

There will be both the appetite and the conditions to facilitate a rewriting of the social contract in ways that many hoped might follow globalisation and the financial crisis. 

The question will be whether today’s politics is up to the job; or whether it is doomed to channel dissatisfaction with change into another round of backward-looking populism.

What changes are necessary depends on an understanding of just how substantial a structural economic shift the pandemic is likely to bring about. The story begins with trade. 

China’s Covid triumphalism could be premature

A cult of personality around President Xi threatens to bring bad government in its wake

Gideon Rachman

       © James Ferguson

In 2009, Martin Jacques, a British author, published a bestselling book, When China Rules the World. Mr Jacques is now running a victory lap. He recently proclaimed that “we will remember 2020 as the moment of the Great Transition. The year when China replaced the US as the world’s leading power.”

Believers in a “great transition” see Covid-19 as the handmaiden of history. The pandemic started in China. But the Chinese government has done a much better job of containing the disease than the US. According to Johns Hopkins University, the total number of US deaths from Covid-19 stood at over 223,000 at the end of last week compared with 4,379 in China. With the disease contained, the Chinese economy is rebounding and looks set to grow by 2 per cent this year, making it the only G20 economy to expand. By contrast, the US economy is likely to shrink by 3-5 per cent and the major European economies are in trouble.

China’s ability to enforce quarantines and test widely is generally seen as crucial to the country’s success. At a recent ceremony, handing out medals to Chinese citizens for their work on Covid-19, President Xi Jinping announced that “the pandemic once again proves the supremacy of the socialist system with Chinese characteristics”.

While the Chinese elite is patting itself on the back, the US establishment is aghast. The New England Journal of Medicine recently noted in an editorial that “our leaders have failed . . . They have taken a crisis and turned it into a tragedy.”

This scathing criticism of the Trump administration has not, however, led to the arrest of the editors of the New England journal. By contrast, last month, Ren Zhiqiang, a property tycoon, was sentenced to 18 years in prison in China. Mr Ren’s fall from grace came after he published an aggressive criticism of Mr Xi’s handling of the early stages of the pandemic, calling the Chinese leader a “bare, naked clown”. Shortly afterwards, Mr Ren was stripped of his Communist party membership and charged with corruption. Some of the doctors who first raised the alarm about Covid-19, in private exchanges, in Wuhan, were notoriously reprimanded by the police. External critics of China’s handling of Covid-19 are also treated with ferocity. When the Australian government suggested an international inquiry into the pandemic, Beijing responded with trade sanctions.

The inability to accept criticism suggests that pro-Beijing triumphalism is premature. In broad terms, there is not much doubt that China, after mishandling the initial outbreak, has done a good job of containing the disease. But some Asian democracies, such as South Korea and Taiwan, have done even better, which undermines Mr Xi’s claim that China’s “socialist system” was the key to success. China’s urge to suppress criticism also suggests that if there are continuing problems inside the country, Beijing will cover them up.

The pandemic has also significantly eroded international goodwill towards China. It may be regarded as traitorous in China to highlight the origins of the disease — or to point out that the previous Sars epidemic also originated in China. But the outside world has noticed. A recent Pew opinion survey of 14 mainly western nations showed 61 per cent thought China had done a bad job of handling Covid-19 and that distrust of Mr Xi has soared.

The international backlash compounds the challenges to the “China model” already created by Covid-19. For 40 years Chinese economic growth has been powered by trade. The country is the world’s largest manufacturer and its largest exporter. But Covid-19 has seen a sharp reduction in world trading volumes. This is happening at a time when the US is rallying international opposition to Beijing and curtailing trade in sensitive technologies. As a result, the permissive international environment that powered the Chinese economic miracle is disappearing.

China’s leadership is meeting this week to plan for the years ahead. But its ability to openly debate these problems is hampered by the thought-stifling cult-of-personality that has built up around Mr Xi. Since taking power in 2012, the Chinese leader has purged many of his rivals, abolished constitutional term-limits that would prevent him ruling for life, and forced the Communist party to incorporate “Xi Jinping thought” into its constitution.

This is no mere formality. On the contrary, government officials and even private companies are under constant pressure to praise the great leader’s banal pronouncements. As a recent column for Bloomberg News pointed out, even China’s weather-forecasters and science-fiction writers have been officially reprimanded for not doing enough to incorporate “Xi Jinping thought” into their work.

Mr Xi admires the leader cult that surrounded Mao Zedong. But blind obedience to Mao’s whims led China to disaster during his cultural revolution. Leader cults rarely end well anywhere — and there is little reason to believe that China under Mr Xi will ultimately be any different.

The US system has had a terrible few years and the American elite is rightly going through a period of self-doubt and introspection. But regular elections offer the possibility to change course and appoint new leaders. The US can get rid of President Donald Trump — and may be about to do so. China has no mechanism to rid itself of the increasingly megalomaniacal President Xi.


by Egon von Greyerz

Get ready for the biggest collapse in the history of mankind. It will be devastating and reach all parts of society, economic, financial, political & social.

But wait, it won’t happen just yet. Because before that the world will experience a LIFTOFF in markets of gigantic proportions. This will be the grand finale of this financial era. It will involve inflationary liquidity injections of proportions never seen before in history and lead to a massive explosion in many asset markets.

Most investment assets will benefit as the disconnect between markets and reality grows to distortionary proportions.


So there we have it. For investors the outcome of this election is totally irrelevant. 

In four years time, the difference for the economy and markets between a Trump or Biden victory will be insignificant.

Either one of them only has one choice. They are both facing a bankrupt country which has been running budget deficits since 1930 with four years of exception in the 1940s-50s. The Clinton surpluses were fake. Also, the US has had trade deficits for almost 50 years. 

The consequence has been an exponentially surging debt which was under $1 trillion when Reagan became President in 1981 and is now $27t. In the next four years, a $40t debt is guaranteed as I forecast four years ago but as the financial system implodes, the debt could easily run into $100s of trillions or $ quadrillions when the derivative bubble bursts.

The global financial system should have collapsed already in 2006-9 but the central banks managed to delay the inevitable demise for over a decade.


What we must understand is that the end of an economic supercycle doesn’t happen quietly. No, the conditions need to be uber-euphoric with maximum bullishness for the economy and stocks. This means that before this era is over, markets must surge in the final months, even double over a 9-18 months period.

Multiple factors are now in place for this to happen. Firstly both presidential candidates will need not just fistfuls of dollars but quantum computers that can print the required trillions and quadrillions of dollars.

The convenient excuse they have is of course Covid. Individuals not working need money, companies need money, municipalities, states and the Federal government need money.

But we mustn’t forget how the end of the final phase of this economic era started. This was back in Aug-Sep 2019 when the Fed and the ECB shouted out from the roof tops that were going to do what it takes to save the system. They didn’t tell us what the problems were, but it was clear to some of us who understood the fragility of the financial system that it was in dire straits. 

When the last crisis started in 2006, the Fed’s balance sheet was $830b. At the end of the Great Financial Crisis in 2009, the balance sheet had grown to $2t.

But no one must believe that the problem had been solved by 2009. All it was, was a temporary stay of execution. Why otherwise would the Fed’s balance sheet have grown by another $5t since 2009. 

Just looking at the predicted budget deficits in the next 4 years, plus accelerating problems in the financial system the Fed’s balance sheet is likely to explode in coming years.


So the conditions are in place for the biggest liquidity injection in financial history. For many years we have experienced a total disconnect between economic reality and markets. The coming acceleration in money printing and liquidity injections in to the financial system will be so overwhelming that it will not just fuel markets but also give a short term, albeit artificial, boost to the economy.

This is a typical course of events at the beginning of an inflationary phase which leads to hyperinflation as the currency collapses.

The paralysation of the world economy due to Covid will probably peak with the current second wave and therefore add to the optimism in markets. But no one must believe that the pandemic is the cause of the problems in the world economy. No, it has just been a very vicious catalyst which hit an already fragile financial system.

When Covid gradually slows down, the initial optimism combined with the flooding of the system with printed money might last for a year or so. But as the world realises that you cannot solve a debt problem with more debt, the real difficulties in the economy and the financial system will reemerge with a vengeance.


So let us look at a possible scenario of events following the election:

New president will flood the economy with money & boost stocks

Initial market volatility will settle down quickly and investors will respond optimistically to the new president’s promises of support to every corner of the economy.

Stock markets will surge and could double over a 9-18 month period. No cash will be left on the sidelines. Both institutions and retail investors will throw all the cash they have at the stock market. There will be a frenzy which will surpass the tech stock boom in the 1990s. There will be fanfares and blazing guns as the market seems unstoppable.

But after the likely short-term boom, there will be tears as markets fall by over 90% in real terms. And sadly most investors will ride the stock market all the way down. The big difference this time is that central banks will not and cannot save them.


The biggest beneficiary of this coming boom will be commodity markets which are at a 50 year low versus stocks. Looking at the chart below, the minimum target would be commodities outperforming stocks by 4 to 1. 

Eventually a new high in commodities against stocks is likely. This would mean commodities outperforming stocks by 20x. The first part of this outperformance will come as stock markets rise. But the final phase will be when general stock markets collapse and commodities continue to strengthen. 

Goldman Sachs expect commodities to rise 28% in 2021. They expect inflation plus a commodities deficit will drive prices higher. And this is of course what the chart below tells us.


Gold, silver and platinum will vastly outperform stocks. The Dow – Gold ratio will initially reach 1 to 1 where it was in 1980 when gold was $850 and the Dow index 850. 

Eventually the ratio will reach at least 0.5 to 1 which means that the Dow will lose 97% against gold in the next five years.

Goldman Sachs expects gold to reach $2,300 in 2021 but I believe that target is too conservative. Before gold breaks out above the August high at $2,074, a correction down to $1,800-20 is possible and would not change gold’s unstoppable rise. In this latest phase, gold is in a bull market or more correctly, the currencies are in a bear market since 1999. 

The continued debasement of the currencies is guaranteed by the central banks since they only have one option – TO PRINT AND PRINT AND PRINT until money dies.

We must remember that gold is the king of the metals and therefore the safest precious metal to hold. But initially at least, silver and platinum will strongly outperform gold but with massive volatility.

Vital to hold physical metals stored in safe vaults in the investor’s name, outside the banking system. It is important not to forget that the risks in the financial system will be at a maximum for the next few years and a failure can happen at any time.


For the smart investor, this is where more money will be made than in any area of stocks or other investments. Especially the juniors will really shine. But this is a market for specialists. So either best to follow some of the smartest investors in this area or to buy an index of these stocks. There will be many 10-20 baggers and even some 100 baggers but obviously also some losers. So important to have a spread.

The biggest risk with mining stocks is that they are normally held within the financial system. So even though they are a terrific investment opportunity, they are not the best form of wealth preservation. Therefore it is safer to have a much bigger allocation to the physical metals which, even though they will underperform the mining stocks, will see massive capital appreciation.

The chart below shows XAU gold – silver index against the Dow since 1983 when the XAU was introduced. Since then the XAU has lost 95% against the Dow. This fall is likely to be reversed in the next few years with the XAU going up 20x against the Dow . For Dow investors this means losing 95% against mining stocks.

And sadly, this is what will happen to 99% of investors as they stick to their ordinary stocks and miss the most incredible opportunity.


Printing unlimited amounts of money always has consequences. Since 1971 the dollar has lost 98% in real terms which means against gold since gold is the only money that has survived in history.

The dollar is now starting its final journey to ZERO and as the table shows, even a weak and artificial currency like the euro will outperform the doomed dollar.

A falling dollar will accelerate US inflation until it leads to hyperinflation.


Interest market is probably the most contrarian of all trades today. The whole investment world, including the Fed and the ECB believe that rates will stay at zero or below for years to come. Normally when consensus is that strong, the opposite is more likely to happen.

Also, rising a weaker dollar will cause higher inflation which will put upward pressure on rates. As investors start selling the long end of the bond market, short rates will eventually follow.

Precious metals normally benefit from negative real rates which means that inflation is higher than interest rates. Gold can still rise strongly with high nominal rates as long as inflation is higher. We saw this happen in the 1970s to the early 1980s when rates reached 20% and gold went from $35 to $850. During that time, inflation remained higher than rates.

I remember this period well as I experienced it in the UK with my first mortgage reaching 21%.


So there is now an opportunity for all investors to double their money in the stock market in the next 9-18 months as ever more liquidity will fuel stock markets.

But a Caveat Emptor (Buyer Beware) warning is in place here. Asset markets are already in a major bubble and the financial system is so fragile that it could break at any time.

So rather than chasing the last leg of this bull market which most investors will do, it will be much better to look at safer alternatives.

I have outlined them above. Physical precious metals and precious metals stocks will outperform all other markets. And these all present the best risk. Both the metals and the metal stocks will boom in the final phase of the stock market boom. And as stock markets top and then crash, the precious metals sector will continue to perform extremely well as currencies are debased.

As I stated above, the general stock market is likely to lose at least 95% against the precious metals sector in the next five years.

There has probably never before been such a clear choice in investment markets but sadly most investors will miss it. They will instead stick to their conventional portfolio which will include a lot of the already overvalued tech stocks.

Holding gold and silver stocks will be the investment opportunity of a life time. But since they are held within a vulnerable financial system, we believe that a these holdings should represent a much smaller percentage than physical metals.

To hold physical gold, silver and platinum outside the fragile banking system is the ultimate form of wealth preservation and insurance against a debt infested and unsafe financial system.

With a portfolio of some precious metals stocks and physical metals, investors will be able to ride out the coming storm and volatility in markets and also benefit financially. Of course there will be volatility also in the metals market but the trend in the next 5+ years is virtually guaranteed.

So better to avoid the coming boom and bust in the general stock markets and stick to metals.

The US Election’s Chaos Quotient

While hoping for a conclusive outcome on November 3 (or immediately thereafter), market watchers unfortunately must prepare for the worst. After all, US President Donald Trump and the Republicans are not even hiding their plans to steal the election.

Nouriel Roubini

NEW YORK – Opinion polls in the United States have long pointed to the strong possibility of a Democratic Party sweep in the election on November 3, with Joe Biden winning the presidency and Democrats gaining control of the US Senate and holding on to the House of Representatives, putting an end to divided government.

But if the election turns out to be mostly a referendum on US President Donald Trump, Democrats might win just the White House while failing to retake the Senate. And one cannot rule out the possibility of Trump navigating a narrow path to an Electoral College victory, and of Republicans holding on to the Senate, thus reproducing the status quo.

More ominous is the prospect of a long-contested result, with both sides refusing to concede as they wage ugly legal and political battles in the courts, through the media, and on the streets. In the contested 2000 election, it took until December 12 for the matter to be decided: the Supreme Court ruled in favor of George W. Bush, and his Democratic opponent, Al Gore, gracefully conceded. 

Rattled by the political uncertainty, the stock market during this period fell by more than 7%. This time, the uncertainty could last for much longer – perhaps even months – implying serious risks for the markets.

This nightmare scenario must be taken seriously, even if it currently seems unlikely. While Biden has consistently led in the polls, so, too, had Hillary Clinton on the eve of the 2016 election. It remains to be seen if there will be a slight surge in “shy” swing-state Trump voters who are unwilling to reveal their true preferences to pollsters.

Moreover, as in 2016, massive disinformation campaigns (foreign and domestic) are underway. US authorities have warned that Russia, China, Iran, and other hostile foreign powers are actively trying to influence the election and cast doubt on the legitimacy of the balloting process. 

Trolls and bots are flooding social media with conspiracy theories, fake news, deep fakes, and misinformation. Trump and some of his fellow Republicans have embraced lunatic conspiracy theories like QAnon, and signaled their tacit support of white supremacist groups. 

In many Republican-controlled states, governors and other public officials are openly deploying dirty tricks to suppress the votes of Democratic-leaning cohorts.

On top of all this, Trump has repeatedly claimed – falsely – that mail-in ballots cannot be trusted, because he anticipates that Democrats will comprise a disproportionate share of those not voting in person (as a pandemic-era precaution). He also has refused to say that he will relinquish power if he loses, and has instead given a wink and a nod to right-wing militias (“stand back and stand by”) that have already been sowing chaos in the streets and plotting acts of domestic terrorism. 

If Trump loses and resorts to claiming that the election was rigged, violence and civil strife could be highly likely.

Indeed, if the initial reported results on election night do not immediately indicate a sweep for the Democrats, Trump would almost certainly declare victory in battleground states before all mail-in ballots have been counted. Republican operatives already have plans to suspend the counting in key states by challenging such ballots’ validity. 

They will be waging these legal battles in Republican-controlled state capitals, local and federal courts stacked with Trump-appointed judges, a Supreme Court with a 6-3 conservative majority, and a House of Representatives where, in the event of an Electoral College draw, Republicans hold the majority of state delegations.

At the same time, all of the white armed militias currently “standing by” could take to the streets to foment violence and chaos. The goal would be to provoke leftist counter-violence, giving Trump a pretext to invoke the Insurrection Act and deploy federal law enforcement or the US military to restore “law and order” (as he has previously threatened to do). 

With this endgame apparently in mind, the Trump administration has already designated several major Democratic-led cities as “anarchist hubs” that may need to be put down. 

In other words, Trump and his cronies have made clear that they will use any means necessary to steal the election; and, given the wide range of tools at the executive branch’s disposal, they could succeed if early election results are close, rather than showing a clear Biden sweep.

To be sure, if early results on election night show Biden with a strong lead even in traditionally Republican states such as North Carolina, Florida, or Texas, Trump would find it much harder to contest the result for more than a few days, and he would concede sooner. 

The problem is that anything short of a clear Biden landslide will leave an opening for Trump (and the foreign governments supporting him) to muddy the waters with chaos and disinformation as they maneuver to shift the final decision to more sympathetic venues such as the courts.

This degree of political instability could trigger a major risk-off episode in financial markets at a time when the economy is already slowing and the near-term prospects for additional policy stimulus remain grim. If an election dispute drags on – perhaps into early next year – stock prices could fall by as much as 10%, government bond yields would decline (though they are already quite low), and the global flight to safety would push gold prices higher. 

Usually in this type of scenario, the US dollar would strengthen; but, because this particular episode would have been triggered by US-based political chaos, capital might actually flee from the dollar, leaving it weaker.

One thing is certain: a highly contested election would cause further damage to America’s global image as an exemplar of democracy and the rule of law, eroding its soft power. Particularly over the past four years, the country has increasingly come to be regarded as a political basket case. 

While hoping that the chaotic outcomes outlined above do not come to pass – polls still show a strong lead for Biden – investors should be preparing for the worst, not just on election day but in the weeks and months thereafter.

Nouriel Roubini, Professor of Economics at New York University's Stern School of Business and Chairman of Roubini Macro Associates, was Senior Economist for International Affairs in the White House’s Council of Economic Advisers during the Clinton Administration. He has worked for the International Monetary Fund, the US Federal Reserve, and the World Bank. His website is, and he is the host of

COVID Forecasts

What the Pandemic Has in Store for the World

By the end of the year, scientists are predicting that the number of COVID-19 victims will be significantly higher than it is now. But decisive steps could prevent the worst.

By Marco Evers

         The burial of a COVID-19 patient in Russia Foto: Dmitri Lovetsky/ dpa

The year 2020 is 280 days old, and the virus that has dominated our lives in recent months isn’t all that much older than that. Yet it has still managed to circle to globe many times and has lodged itself in the respiratory passages of at least 34 million people.

The coronavirus, which is only 100 millionths of a millimeter in size, continues to spread: At the moment, there are more than 300,000 new infections each day. And that figure is likely to continue to rise, especially in the northern hemisphere as temperatures drop and people spend more time indoors. 

This autumn and winter, experts are expecting a massive increase in COVID-19 infections, in Europe especially, but also in the United States.

Last week, the virus passed a sad milestone. According to official data, evaluated by Johns Hopkins University, the 1 millionth person has now died of COVID-19, with the number of known deaths having doubled within just three months. However, given that not every victim of the disease is recognized as such, the true number of coronavirus-related deaths could actually be higher.

Meanwhile, the dying continues. Medical statisticians at the Institute for Health Metrics and Evaluation (IHME) at the University of Washington expect that we will (officially) surpass 2 million deaths from the virus by mid-December.

New Year’s Eve will make the anniversary of the first time that China informed the regional office of the World Health Organization about cases of pneumonia from an unknown cause. The current model from the IHME researchers in Seattle predicts that more than 2.5 million people worldwide will have died by that anniversary.

A Low Point

In just one year. No virus since the Spanish flu of 1918-1919 has ever brought as much suffering to the world so quickly. Even with AIDS, it took around 75 years to reach a death toll of 1 million. Researchers believe that the HIV virus had already spread from chimpanzees to humans in western Central Africa around 1920, but it took decades before it was even noticed.

As such, in the history of infectious diseases, 2020 will mark a low point. The long-predicted loss of control over the ever-changing cosmos of bacteria, viruses and fungi appears to be taking shape. Experts had been warning about the eventuality for years and WHO published an alarming report as recently as September 2019.

But politicians ignored the warnings, and the numbers emerging now are horrific. COVID-19 will kill more people this year than any other infectious disease. If the statisticians are correct in their projection for the year as a whole, COVID-19 will kill more than three times as many people as HIV/AIDS and five times more than malaria did last year.

COVID-19 is by no means "just a harmless flu” as doctors initially hoped and conspiracy theorists still believe (that is, if they even believe in the virus at all).

Even the total global traffic deaths, with 1.3 million victims annually, are unlikely to prove nearly as lethal as SARS-CoV-2. Around 60 million people are expected to die this year from heart failure, cancer, accidents, viruses and bacteria - and the coronavirus will be the culprit in one out of 25 of those deaths.

And this is just the beginning. The pandemic will only end once the virus is no longer able to find new people to infect. At present, there are still more than 7 billion people who have neither been vaccinated nor survived an infection to develop immunity.

In contrast to other epidemics, this time it’s not predominately in faraway slums of poor countries with a dearth of doctors and medicines where the dying is happening. 

It’s happening everywhere - in rich and working-class neighborhoods, on distant islands and at the best university hospitals of the richest cities in the world.

Learning to Live and Die with the Virus

Many people die all alone, perhaps in the care of nurses who are wrapped in plastic to keep them safe. In many places, graves are dug in large numbers close together, and relatives are forced to eschew the kinds of funerals or farewells that we took for granted until January.

It’s likely that there will be several vaccines of differing effectiveness and that improved medicines will be available. But although it will likely be easier to control in the future, the virus has a large reservoir in humans and animals, making it impossible to completely eradicate. Like the flu and cold viruses, it will be a constant presence. And we will have to learn how to live with it, and to die with it.

Despite the enormous number of victims, many are still unwilling to grasp the full force of the pandemic. There are a variety of reasons for this. Impressions locally can be deceptive. Germany has got off lightly so far, with only around 9,500 deaths. In contrast to other countries, the number of victims dying from COVID-19 here is, at least so far, comparable to mortality figures for an average flu.

This seemingly minor danger is leading many people to underestimate the seriousness of the situation, leading to anger at and disregard for the rules aimed at preventing the further spread of the virus. But Germans aren’t somehow magically more immune than other countries. Without the rules Germany imposed early in the course of the epidemic, the country would be in a far worse position today.

In the neighboring Netherlands, for example, enforcement of policies on the wearing of face masks and social distancing have been extremely lax Football fans there could still be seen shouting in the streets a week ago, celebrating cheek to cheek. There isn’t even a mask requirement in retirement homes. According to official figures, twice as many people are currently infected there as during the worst days in April. The next lockdown looms on the horizon, threatening to inflict deep economic wounds.

Transporting the bodies of coronavirus victims in Guayaquil, Ecuador Foto: Luis Perez/ dpa

The situation is even more dramatic in some regions of Spain, France and Britain. Meanwhile, the Czech Republic has announced another state of emergency as a result of COVID-19. This winter is likely to be a real ordeal for many countries.

Given how virus has settled in and won’t disappear on its own, most countries only have one option at their disposal: They will have to fight the pandemic with tough measures and then ease up to allow the economy and peoples’ psyches to recover. Inevitably, the virus will regain strength after a while, followed by the next phase of tougher measures.

At best, politicians and government authorities will find ways to not have to impose blanket restrictions lasting for months at a time. But they also find themselves walking a fine line between virological necessity and the need to not lose the support of the populace.

Long-Term Effects

There’s also another reason the virus is making a massive return: the frivolity of youth. COVID-19 primarily kills elderly people, especially home residents and people with pre-existing conditions. The risk of dying from COVID-19 increases from the age of 50, but the vast majority of the dead have been over 70 years old.

But no one can feel safe just because they are 20 or 40. Although most patients in that age group experience relatively mild symptoms, COVID-19 has also killed young people, including children and adolescents. The risk is particularly high for the obese, diabetics and people with lung problems.

Some of the younger patients are also recovering much more slowly than initially expected. Some survivors have reported months of fatigue, headaches, muscle pain and shortness of breath. The disease can lead to permanent damage to the heart, blood vessels and the nervous system, for example.

Even after almost a year, doctors still haven’t been able to conclusively assess how dangerous SARS-CoV-2 is. Anyone, regardless of age, is therefore advised to do everything possible to avoid getting infected in the first place and further spreading the virus. That means it’s better to meet friends outside than inside. It’s better to ride a bicycle than to take the bus. 

It’s better to order take-out food rather than dining in a restaurant. Masks need to be worn, social distancing is paramount and we should all stay home if we are experiencing even the slightest of symptoms. And when indoors, take extra steps to ensure proper ventilation.

The virus also may not be solely responsible for all the damage it does. Richard Horton, editor-in-chief of the British medical journal The Lancet sees more than a pandemic at work here. He also sees a "syndemic.” The argument is that the virus is only winning because it has encountered a population that isn’t really healthy in the first place. 

In his editorial in The Lancet, Horton points to the huge task facing us of making health-care systems better able to get through the current and future pandemics. 

What’s needed is an improvement of the overall human constitution: less obesity, less diabetes, less high blood pressure and less exclusion of the socially disadvantaged and minorities.

Genetically, viruses are extremely similar in all countries. But they have strikingly varying effects worldwide because not all societies are equally healthy, equally fat, equally elderly or equally well-prepared.

Just Seven Deaths

Take Taiwan, for example. The country has had a total of seven deaths in a population of over 23 million people. In Vietnam, which is home to 96 million residents, 35 have died. 

Both countries were severely affected by the first SARS virus in 2002-2003, and the shock they experienced also taught them some lessons that they applied to their public health systems, which they have since expanded in response. They produced enough masks and protective clothing, made pandemic plans and prepared quarantine hotels. 

On top of that, they also have epidemic-tested professionals in hospitals and health authorities.

Even a country as poor as Rwanda appears to be getting through the crisis relatively well: Out of 12 million inhabitants, only 29 people have died there. The country benefits from its young population and from the medical infrastructure that was built to handle the HIV crisis. 

Liberia and Sierra Leone aren’t doing badly either, with official deaths at 82 and 72 respectively. Both countries contained the spread of the coronavirus early on by strictly isolating infected persons and quarantining their contacts - strategies they internalized in the fight against Ebola.

New Zealand, a country with almost 5 million people, of whom on 25 died of COVID-19, had a hard lockdown, coupled with a border closure consistent with its status as an island nation. The government under Jacinda Ardern communicated clearly about the measures, shoulder to shoulder with the country’s scientists. The population rewarded the approach with trust and support.

The situation was altogether different in the United States, the leading power in the Western world. The country is home to only 4 percent of the world’s population, but it has experienced 20 percent of the world’s coronavirus infections and deaths. Over 200,000 Americans have been killed by the pathogen thus far - more than three times the number of U.S. soldiers who died in Vietnam.

U.S. President Donald Trump has actively thwarted the kind of effective pandemic management that proved so successful in Taiwan. He has thrown epidemiologically sensible measures, like the temporary closure of churches, into a death spiral of political polarization – and important institutions such as the Centers for Disease Control and Prevention (CDC) along with it.

The consequence being that  statisticians at IHME expect the number of deaths in the U.S. to rise to around 382,000 by the end of the year. That would be half the number of people who died in the U.S. Civil War. Or 125 times as many as died in the 9/11 terrorist attacks. Or 155 times as many as at Pearl Harbor.

The Importance of Masks

By comparison: A model run by IMHE indicates that Taiwan will have a total of 10 COVID-19 deaths by the end of the year, three more than have died so far.

The statisticians in Seattle also ran through a scenario for Germany. Their continuously changing model estimates that there could be double the number of deaths in the country by the end of the year, with the total figure rising to 24,600. That projection is based on the assumption that the current moderate corona rules will be maintained. 

Chancellor Angela Merkel issued a similar warning the week before last, saying there could be 19,000 new infections in Germany each day by Christmas if the numbers continue to double each month.

But that’s not a foregone conclusion. The number of infections is rising significantly in the country. And the measures to contain it are also being tightened. The IHME experts also wrote that if the Germans are as vigilant as Singapore when it comes to wearing face masks (meaning almost always when they are outside their homes), which in their opinion is the most important means of protection, around 13,000 deaths could be prevented by the end of the year.

But the models used by the statisticians are not without controversy. Dozens of research groups are producing estimates, and each works with different sets of assumptions and methods. Only some of their results are similar, and most of the predictions will be inaccurate. It's just not clear which ones. IHME’s June forecast on the number of deaths in the U.S. has more or less come true, although it was slightly too optimistic.

And yet all forecasts fail to take into account what is really happening. In truth, the situation is even more serious because people are not just dying from the coronavirus, but also because of it.

In large parts of Africa, for example, pest control operations against the malaria-carrying Anopheles mosquito have been scaled back because of the pandemic. As a consequence, malaria is likely to cause more deaths now than it did in 2019. 

Vaccination campaigns against measles, the whooping cough, tetanus and diphtheria have also been interrupted, as well as measures against AIDS and tuberculosis. 

Thousands and thousands of people could die as a result and the global progress that has been made in protecting against these infectious diseases could be set back by years.

Future Pandemics

Polio, brought to the brink of extinction after billions of dollars in efforts, could even resurface as a result of SARS-CoV-2. The poorest countries - Afghanistan, Yemen, South Sudan and Haiti – are facing famines that have been exacerbated because of the coronavirus.

Wealthy countries haven’t been spared from the collateral damage caused by the coronavirus either. Operations and treatments have been postponed because of the pandemic. Cases of domestic violence are increasing, as are those of alcoholism, depression and anxiety.

Sooner or later, once the medical possibilities have been refined and entire societies and health systems have been reorganized, SARS-CoV-2 will have lost much of its horror. 

At that point, hopefully those voices that have been warning us for years will also carry some weight: Because we will be facing pandemics with new pathogens again in the future. 

And it won’t just be one. There will be many.  

Charles Koch’s Big Bet on Barrett

For almost 50 years, the multibillionaire has been pushing for a court unfriendly to regulation of the market. He may be on the brink of victory.

By Christopher Leonard

Credit...David Zalubowski/Associated Press

Charles Koch has activated his political network to support Judge Amy Coney Barrett’s nomination, and to tip the scales on her nomination battle in the U.S. Senate. 

While much of the commentary about Judge Barrett’s nomination has focused on the real prospect that Roe v. Wade may be undermined or overturned, Mr. Koch has other concerns. 

Judge Barrett’s nomination is the latest battleground in his decades-long war to reshape American society in a way that ensures that corporations can operate with untrammeled freedom. It may be a pivotal one.

Since the early 1970s, Mr. Koch has sought to dismantle most federal regulatory institutions, and the federal courts have been central to that battle. In 1974, Mr. Koch gave a blistering speech to a libertarian think tank, called the Institute for Humane Studies, in which he outlined his vision of the American regulatory state, and the strategy he would employ over the ensuing decades to realize that vision. 

On the list of government interventions he condemned were “confiscatory taxation, wage and price controls, commodity allocations programs, trade barriers, restrictions on foreign investments, so-called equal opportunity requirements, safety and health regulations, land use controls, licensing laws, outright government ownership of businesses and industries.” 

As if that list were not exhaustive enough, he added “… and many more interventions.” 

In short, Charles Koch believes that an unregulated free market is the only sustainable structure for human society.

To achieve his goal, Mr. Koch has built an influence network with three arms: a phalanx of lobbyists; a constellation of think tanks and university programs; and Americans For Prosperity, a grass-roots army of political activists. And shaping the U.S. judiciary has been part of Mr. Koch’s strategy from the beginning. 

In that 1974 speech, he recommended strategy of “strategically planned litigation” to test the regulatory authority of government agencies. Such lawsuits could make their way to the Supreme Court, where justices could set precedent. 

In the 1990s, he focused on lower-level judges, funding a legal institute that paid for judges to attend junkets at a Utah ski resort and Florida beachfront properties; the judges attended seminars on the importance of market forces in society and were warned against consideration of “junk science” — like specific methods to measure the effects of pollution — that plaintiffs used to prove corporate malfeasance.

Mr. Koch also sought to influence the judiciary at the federal level. Between 1997 and 2017, the Koch brothers gave more than $6 million to the Federalist Society, a nonprofit institute that recruits libertarian and conservative judges for the federal judiciary, according to a tally by the activist group Greenpeace.

Mr. Koch’s efforts on the Supreme Court intensified after Donald Trump’s election, when a Republican-controlled Senate opened the way to install judges who could tip the court’s ideological balance. 

Americans for Prosperity undertook national campaigns to support President Trump’s previous Supreme Court nominees, Neil Gorsuch and Brett Kavanaugh. 

A.F.P. said the Kavanaugh campaign alone — fliers, digital ads and staff for phone banking and door knocking — ran into “seven figures.” Now, Americans for Prosperity is doing the same for Judge Barrett. 

A.F.P. activists are pressuring U.S. senators in several states, with a particular eye toward vulnerable Democrats like West Virginia’s Joe Manchin. The group is also working in Alaska, where Republican Lisa Murkowski has given mixed signals about whether she is willing to vote on Judge Barrett’s nomination before the next president is elected.

Mr. Koch is selective about where he spends on politics, and the returns to reshaping the Supreme Court could dwarf the millions he’s invested. The court plays a pivotal role in determining how much regulatory power the federal government has over corporate America. 

The closest the Supreme Court has come to reflecting Koch’s vision for regulation is the so-called “Lochner era” of the early 20th century, during which an activist court struck down a wide-range of federal regulations on business, turning the country into a free market free-fire zone.

A Supreme Court that has swung hard to the right could reverse earlier decisions and issue new ones that create something like a new Lochner era. In the world of corporate law, the lodestar legal case is Chevron U.S.A. Inc. v. Natural Resources Defense Council. This case, decided in 1984, created an important legal precedent called “Chevron deference.” 

It holds that courts should generally defer to an agency’s interpretation of a law enacted by Congress when the law is ambiguous (provided that the agency interpretation is reasonable). This helps empower agencies like the Environmental Protection Agency to operate complex regulatory regimes, even if some details are not specifically detailed in the law. 

The current Supreme Court has signaled a willingness to reconsider this precedent, a move that could dramatically weaken federal regulatory agencies.

Mr. Koch and the Trump administration are united in their desire to undo the Chevron decision. Mark Holden, Koch Industries’ general counsel and a board member of Americans for Prosperity, has publicly decried Chevron deference as a tool of tyranny. “The administrative state is often fundamentally at odds with our carefully crafted constitutional order,” Mr. Holden wrote in a 2018 op-ed for The Hill. 

He said the legal precedent gave agencies like E.P.A. so much power that they consolidated the authority of all three branches of government under one roof: Passing rules, enforcing them and then handing down verdicts in administrative courts. At the White House, a former White House counsel, Donald F. McGahn II, said the Trump administration sought to appoint Supreme Court justices who would rein in the independent agencies. Justice Gorsuch, for example, wrote multiple appeals court opinions that echoed Mr. Holden’s views.

The Koch network apparently has faith that Judge Barrett will rule in concert with these beliefs. This is something of a gamble. She has been a federal judge for only three years, leaving a short paper trail of cases and academic work from which to deduce her views. 

Judge Barrett’s legal writings do point toward one important idea: She, like many judges, appears to believe that some precedents which the court has created with its decisions should be overturned. Barrett has publicly said that her judicial philosophy is the same as former Justice Antonin Scalia. 

As Lisa Heinzerling, a law professor at Georgetown, told The Washington Post, what this signals depends on which version of Justice Scalia Judge Barrett agrees with. Justice Scalia was a supporter of Chevron deference early in his tenure, but became more skeptical of it over time as he defended the power of courts to undo or weaken acts of Congress.

The Americans for Prosperity campaign literature supporting Judge Barrett does not appear to mention the Chevron case, nor any other ruling about corporate power. One Facebook ad simply says that she is “committed to our Constitution, and that she won’t legislate from the bench.” Spokesmen for A.F.P. echo that line, emphasizing that the Koch network isn’t looking for policy outcomes, but for honest jurists who will follow the Constitution to the letter.

History shows that it is just as effective to legislate from the bench by striking down laws as by upholding them. The Lochner era proves that policy negation is just as powerful as creation, and it affects just as many lives. 

As Charles Koch has written and stated so often in the past five decades, there are many, many laws and programs that he would like to negate. With the appointment of Judge Barrett to the court, he appears to be closer than ever to achieving this goal.

Christopher Leonard (@CLeonardNews) is the author of “Kochland: The Secret History of Koch Industries and Corporate Power in America,” and director of the Watchdog Writers Group at the Missouri School of Journalism.

Japan’s Glacial Ascendance

Almost-great power status is Japan’s sweet spot – so long as the U.S. sticks around.

By: Phillip Orchard

For such a historic transition of power, the handover from Shinzo Abe, Japan’s longest-serving and most powerful postwar prime minister, to Yoshihide Suga was always going to be short on drama. Suga, Abe’s longtime chief of staff, faced only token competition from a handful of other ruling party bigwigs. 

His ruling Liberal Democratic Party commands large majorities in both houses of the Diet and doesn’t need to call for elections right away, diminishing any need to win over the public with platforms calling for sweeping change. 

And there's no real reason to think Suga, a proudly uncharismatic septuagenarian technocrat without an independent power base, is especially interested in or capable of steering the country in a new direction. 

After all, he was instrumental in both crafting and implementing his boss’ agenda for tackling Japan’s biggest problems: its decadeslong economic stagnation, demographic decline and the rapid rise of China. 

This agenda remains unfinished – and bedeviled by constraints that, under Suga, will grow steeper as Japan reels from the economic fallout of the coronavirus pandemic.

In other words, continuity is once again the theme of the day in Japan – a fitting fate since the country is basically locked into its geopolitical trajectory. It’s perpetually toeing the line between great ally and great power. 

This makes Japan nothing if not steady, a buttress to a regional order thrown in flux by China’s rise and lingering uncertainty about the U.S.’ strategic direction. 

But it also means Japan is not really on track to break out as East Asia’s foremost economic or military power anytime soon. So for Tokyo, which perpetually craves greater strategic autonomy from the U.S. but fears being abandoned by it, continuity will mean doing everything possible to avoid the latter.

More Latitude

The pace of Japan’s revival as a major power tends to be gauged through the prism of its revival as a military power – and this tends to be gauged through the prism of its endless debate over its war-renouncing constitution. 

Article 9 of the charter – which the U.S. wrote in 1947 but which much of Japanese society has embraced – explicitly forbids the use of force by Japan as a means to settle international disputes and strictly disallows Japan from having a military. 

But Japan has a very robust military, of course, even if an intentionally limited one, making the practical effect of the constitution on Japan’s defense posture often poorly understood.

The article itself isn’t an immovable legal constraint on Japanese remilitarization. Tokyo has routinely “reinterpreted” the clause to meet its defense requirements, beginning in 1954 when the military was reestablished as a “self-defense force” and an extension of the national police. 

By the 1990s, Japan had the world’s third-largest military budget. More recently, in 2015, Abe’s administration pushed another “reinterpretation” through parliament to allow Japanese forces to come to the aid of an ally in foreign conflicts. 

Under Abe, Japan’s weapons purchases increasingly blurred the lines between offense and defense, most notably its new fleet of “helicopter destroyers,” which are actually flat-decked amphibious assault ships capable of functioning as aircraft carriers. 

The latest debate over reinterpreting the charter concerns missile threats from China and North Korea, with Abe and Suga this summer abruptly canceling plans for the U.S.’ Aegis Ashore anti-missile system on grounds that the money should be spent instead on its own missiles capable of striking enemy launch sites.

By the logic of military deterrence, just about any weapons system can be deemed “defensive” if you try hard enough. (Japan doesn’t even see nuclear weapons as covered by Article 9.) 

For Tokyo, national defense cannot start at the edge of the country’s territorial waters. Since the country is almost entirely bereft of natural resources, it must maintain access to sea lanes through the South China Sea and Western Pacific – even ones as far away as the Persian Gulf, where Japan's deployment of minesweepers in 1991 marked a watershed moment in Tokyo’s return to military activities far from home.

And yet, the fact that Abe was determined to amend Article 9 to give Tokyo more latitude over the shape and use of military force – along with the fact that, despite the LDP’s supermajorities, Abe left office without doing so – illustrates that the pacifist constitution still matters, as do the political and strategic constraints it represents.

The Same Constraints

Throughout the Cold War, the goals of Japan’s remilitarization were twofold: One was to deter communist aggression, particularly by the Soviets. This meant a heavy emphasis on land-based forces that Japan no longer really needs and on elite maritime surveillance capabilities that have remained invaluable in service of its second goal: making itself an indispensable part of the U.S. alliance structure in the Western Pacific. 

The country has often been characterized as the “shield” to the U.S. “sword,” with Japan’s sophisticated submarine, minesweeping and air forces helping to keep the U.S. from becoming overstretched and to sustain its dominance of the strategically crucial first island chain.

In many ways, almost-great power status is Japan’s sweet spot – at least so long as the U.S. remains close. Its steady but incremental expansion of military capabilities has kept the U.S. invested, while still allowing Tokyo to focus mostly on economic development. 

It allows Japan to enjoy the domestic peace and prosperity of being a great power without having to take on many of the responsibilities and politically contentious costs incurred by great powers. 

It enables Tokyo to navigate domestic political resistance to military expansion and arms it with the credibility to argue that political constraints preclude it from being able to get its hands dirty in U.S. military conflicts in far-off places like the Middle East. 

For much of the region, Japan has enough economic, diplomatic and military influence to be a welcome counterweight to China’s rise but not so much that it distorts the regional balance of power or revives historical fears of Japanese imperialism (except in forever-grudgeful South Korea, of course.) 

Paradoxically, it gives countries like China incentives toward restraint, since provoking Japan too much could make Tokyo abandon the pretense of pacifism. Perhaps most important, it's allowed Japan to put quite a few of the pieces in place for a breakout – for example, in industry and technology and in training and doctrine – if required.

Indeed, Japan has quietly sought to lay the groundwork for a dramatic increase in capabilities if it felt war with China and/or abandonment by the U.S. were imminent. 

Hence the emphasis on weapons systems that blur the lines between offense and defense and on warships that could be transformed into aircraft carriers with a quick retrofit. Hence the steady increases in defense spending. (Suga in late September announced yet another record budget.) 

Hence Japan’s urgency to revive “the Quad” and multilateral economic initiatives in the region aimed at diminishing the risks of the U.S. losing interest in the region or getting tied down elsewhere.

But for Japan to truly break out and be able to stand on its own militarily, continuity isn’t enough. Matching China’s breakneck expansion, or even replacing the bulk of what the U.S. brings to the alliance, would require a staggering increase in defense spending and reorientation of Japanese industry. 

It would probably have to go nuclear. Given its shrinking population, it would have to require a large percentage of its citizens to forget about all that Article 9 stuff and serve in the armed forces And, given how long it takes to build modern ships, develop overseas bases and logistics networks and so on, it wouldn’t be able to wait until a crisis to get started.

This is why the constitution is still a constraint. Japan would need the bulk of the country – voters, the bureaucracy, industry – to be behind the effort. The assumption has always been that if Japan were truly threatened by, say, China or North Korea, the nation would swiftly come around to support an end to Japan's self-imposed pacifism. 

North Korea has been test-launching missiles over the home islands, and China’s ever-expanding naval and air forces have been making incursions into Japanese waters and airspace. 

But the latent public unease represented by the Article 9 debate makes it fairly clear that no such support for nationwide mobilization is forthcoming – particularly during a recession. And though the charter can be carefully and occasionally sidestepped, it still has tremendous influence on the incentives of Japanese politicians and on the country’s powerful bureaucracy. 

If every major reinterpretation requires years of careful staging, bureaucratic wrangling and political and legal risk, the pace of Japan’s military revival will remain incremental.

This is why, for all of Abe’s efforts to get Japan to stop apologizing and start prepping for the day it needs to take full responsibility of its security, his main focus was on more tightly aligning Japan with the U.S. It wasn’t as routine as it sounds. 

The U.S.-Japan alliance has more often than not been an uneasy marriage of convenience, with the two sides routinely at odds over a range of issues, particularly China. Abe’s predecessors from the Democratic Party of Japan even tried to take advantage of a small window opportunity for a Sino-Japanese rapprochement. 

But that window quickly closed because, among other reasons, Chinese ultra-nationalists began seeing the country for the first time in centuries as the stronger of the two, with the long-term trends in its favor. 

Abe saw Beijing as thus having no interest in a grand bargain that wasn’t dictated on its terms. Abe also saw his own country as being unable to reverse the power differential enough to change Beijing’s thinking. 

Neither of these dynamics will be any different under Suga. 

Now as then, preserving the status quo means doubling down on the Americans and hoping continuity will be enough.