Democracy Dies in the Open

Beijing crushes the remnants of Hong Kong’s autonomy.

By The Editorial Board

Pro-democracy lawmakers pose for a photograph during a news conference to announce their mass resignation at the Legislative Council in Hong Kong, Nov. 11./PHOTO: BILLY H.C. KWOK/BLOOMBERG NEWS

Hong Kong’s “one country, two systems” form of government autonomy died this summer, and the Chinese Communist Party is now moving fast to crush its remnants. Beijing’s latest target is the Legislative Council and its pro-democracy lawmakers.

On Wednesday China’s legislature passed a resolution allowing Hong Kong authorities to remove lawmakers without judicial oversight. Hong Kong authorities quickly booted four pro-democracy legislators, including Dennis Kwok and Alvin Yeung, two brave defenders of an independent judiciary.

Hong Kong’s remaining pro-democracy lawmakers responded by resigning en masse. “Sooner or later we would all have been disqualified,” Democratic Party chairman Wu Chi-wai said. Unconditional allegiance to Beijing is now a requirement for office. 

At a news conference Wednesday, Hong Kong Chief Executive Carrie Lam said it is disqualifying for lawmakers to oppose the new national security law or to plan on “indiscriminately voting down” Beijing’s legislative agenda. Ms. Lam will go down in history for betraying her city.

The Communist Party long ago rigged LegCo, as the legislature is known, so democrats could never gain a majority. Pro-democracy lawmakers have nonetheless served their constituents by working to prevent or delay some of the worst legislation and appointees. 

This new resolution completes LegCo’s transformation into a rubber-stamp body. It represents “Beijing’s rule by decree in its ultimate form,” said Claudia Mo, one of the lawmakers who resigned in protest.

Even before this resolution, Hong Kong’s opposition was under siege. Last week Hong Kong police arrested eight current and former pro-democracy lawmakers. They face up to a year in prison for disruptive behavior at a LegCo meeting last spring, but their real offense was defending the rights of Hong Kongers.

The scuffle in May broke out as pro-Beijing lawmakers worked to ram through legislation that suppresses speech by outlawing disrespect of the Chinese national anthem. Pro-Beijing legislators who participated in the tussle haven’t been charged, but pro-democracy lawmaker Andrew Wan, who had to be carried off on a stretcher by paramedics after the scrap, was among those arrested.

Despite widespread opposition, the national-anthem bill passed on June 4. Less than a month later, Beijing imposed a sweeping national-security law on Hong Kong that effectively prohibits all dissent. 

Fearing that pro-democracy candidates would gain seats despite the rigged system, the government postponed the LegCo elections scheduled for last September. Now they’ll be meaningless.

Freedom dying anywhere diminishes the world, but Hong Kong’s fate is especially important because it shows China can’t be trusted to keep its international promises. 

Its treaty with the U.K. promised autonomy to Hong Kong for 50 years through 2047. 

It was extinguished in 2020. 

Minimum wage rises are gaining ground

Economists and politicians rethink their opposition to high floors for the lowest paid workers

Martin Sandbu

The ‘Fight for $15’ successfully lobbied for minimum wage increases at local and state level, because the US federal minimum wage failed to keep up with inflation © Lucas Jackson/Reuters

It is springtime for a policy that has gone in and out of fashion over the years: high minimum wages. 

At the end of last month, the European Commission proposed requiring European governments to ensure “adequate minimum wages” in their economies. Across the Atlantic, Joe Biden has been elected US president on a platform that includes more than doubling the federal minimum wage, to $15 an hour, higher than any state’s current wage floor.

These developments reflect two big changes: one political and one intellectual.

In the US, Mr Biden’s commitment builds on a social movement — the “Fight for $15” — that has successfully lobbied for minimum wage increases at local and state level, because the federal minimum wage has long failed to keep up with inflation. 

In the EU, the about-turn is even more striking. Pushing wages down for the sake of “competitiveness” was central to the eurozone rescue packages a decade ago. Since then, the influence of economic orthodoxy has waned. 

After escaping the clutches of the “troika” of official creditors, Portugal increased its wage floor without negative economic effects; in 2015 even Germany introduced a legal minimum wage.

The embrace of higher wage floors through government policy is of a piece with a bigger shift towards using the state more actively to engineer the outcomes of market activity. This shift manifests itself across a range of policy areas — from a renaissance in antitrust enforcement to a return of strategic industrial policy — often with the EU in the lead. 

But if minimum wages find themselves in favour with establishment politicians, that has only become possible because of a change in mainstream economic thinking. The old consensus was that higher minimum wages would reduce employment, because businesses would no longer want to hire people whose productivity could not justify their wage. The conclusion was that wage floors hurt those they were intended to help. 

Over the past 35 years, however, better evidence and more nuanced theory has eroded that view. It now seems clear that minimum wages can be significantly higher with, at worst, modest effects on employment. That is the overall conclusion from last year’s comprehensive examination of the international evidence by economics professor Arindrajit Dube for the UK government.

What is more, the experience of the European Nordic countries suggests that high effective wage floors can encourage productivity growth. Because employing a lot of workers in low-productivity tasks becomes uneconomical when they cannot be hired on the cheap, wage floors create an incentive for companies to invest more capital or otherwise increase the productivity of the workers they do employ. 

Admittedly, the Nordics have achieved this through collective bargaining rather than legal wage floors and are among the few European nations that do not have statutory minimum wages. Their unions have traditionally worried that legal wage floors reduce the incentive for people to organise in the first place. As a consequence, these countries have expressed scepticism about the initiative from Brussels.

They should drop their resistance. The commission has gone out of its way not to threaten established collective bargaining models in the European countries that have them. On the contrary, in another novelty, Brussels is pushing more countries to facilitate more extensive negotiated wage-setting, including where legal minimum wages exist.

The nature of today’s labour markets means unions should see ambitious legal wage floors as their friend, not their enemy. They reduce the incentive for employers to evade collective agreements by hiring non-unionised — often migrant — workers on worse terms and undercut responsible employers. This is why Norway’s government, for example, has resorted to extending the outcomes of collective agreements to entire sectors, creating what are, in practice, sectoral minimum wages. 

Legal wage floors, much like statutory labour standards, also free up unions to focus on a greater range of pay and working conditions.

Most importantly, a political embrace of high minimum wages opens the door to a shift in the way governing elites view the sources of economic growth, from focusing on wage “competitiveness” to labour productivity. “Competitiveness” presupposes that prosperity comes from competing successfully on price — in a global economy that includes China.

High wage floors, in contrast, require an ambition to replace low-paid jobs with ones that compete on productivity and quality. Achieving this, of course, requires much more than higher minimum wages. It also requires expansive aggregate demand management, ample funding for programmes to help people into good jobs, and sufficient spending on education and training. 

In the middle of a deep crisis, increasing wages at the low end may seem like a dangerous gamble. But given the damage the obsession with “competitiveness” has done in Europe, the alternative is worse.

GLD: Get Ready For A Reversal And New All-Time Highs



I believe that GLD is hitting a low for this correction either today or tomorrow.

GLD is now retesting its 200-day, and this level should act as reliable support just like in the previous bull market.

I feel the timing is good for the reversal to take place.

I believe this is another incredible buying opportunity in GLD and the mining stocks and I'm now ramping up exposure again.

The SPDR Gold Trust ETF (GLD) tanked again on Monday and is down in early market trading on Tuesday to just over 169. Now, more and more investors are starting to question the bull market in gold. But I'm not at all surprised by this decline, as it's been my forecast since the August peak that GLD would correct for a few months, and it was highly likely it would retest its 200-day by around November. Everything is going according to my forecast. Investors are now bailing on gold; this is not what they should be doing. The time to sell was in August, not now. I believe that GLD is hitting a low either today (Tuesday) or tomorrow (Wednesday), and I expect a major reversal to have started by the end of this year. 2021 should be another exceptional year for precious metals and mining stocks; this is an incredible buying opportunity to capture all of those gains.


The gold bull market is far from over. The main driver has been and will continue to be money supply growth (I'm talking U.S. M2 and gold priced in USD). We have seen zero new stimulus, yet M2 is still rising fairly aggressively, as the money stock has grown by over $150 billion per month since August. When the next stimulus package arrives, M2 will surge.

(Source: Federal Reserve)

I always like to post this graph as it's a great visual representation of how the increase in M2 is unprecedented.

(Source: FRED)

The CBO projects the deficit in the U.S. will be $1+ trillion each year over the decade, and that doesn't take into account any new major stimulus packages (which would substantially increase the deficit in 2021). There is no way to balance the budget, which is why money supply growth will continue unabated. 

This is about the dilution of the USD, and the reason gold has been such a productive asset over the last few years, and why it will continue to be a great store of value for the foreseeable future. Everything else - Fed nominees that are pro-gold, the direction of the USD, who is the President of the U.S., etc. - is irrelevant. 

The price of gold will be driven by significant monetary inflation.

(Source: CBO)

The chart below is extremely important. Notice how in the previous bull market (2001-2011), 95% of the time gold never broke below its 200-day. In the first half of that bull run, the ascent was more slow and steady, with gold continuously retesting its MA (200) and always finding support at this level. 

In the late stages of the bull market, the same happened even though the move was more extreme. The 2008-2009 financial crisis was a one-off event that doesn't accurately represent how gold behaved during that decade. 

In other words, during those 10 years, there was really only one time when the 200-day failed to hold - and it was during the worst financial crisis since the Great Depression. 

Gold is back in a well-defined bull market, and the 200-day should act as a reliable retest level as the move advances higher. What's occurring now in gold is similar to the short-term blow-off top/correction in 2006. 

At that time, many also (incorrectly) assumed that the bull market in gold was over. Interest waned as gold corrected and then did nothing for many months. But of course, that wasn't the end of the bull market, and gold came roaring back (more than tripling in value over the next five years). 

Gold is following a similar corrective path, which shows this is completely normal. I fully expect gold to regain form and hit new all-time highs next year. 

As I said back in August when gold started to tank: "It's in the process of working off much of the recent excessive bullishness and should then build a strong base, which will allow it to catapult higher either at the end of this year or early next year. That's when gold breaks hard above $2,000 and likely reaches $2,500+."


It would be odd for gold to break above the previous 2011 highs, hitting new all-time highs, only to break down again. Especially given the extraordinary, stimulus-driven environment we are in at the moment. Never say never, but I feel the chances of this scenario playing out are low.

The gold miners have also precisely behaved as expected. As I told subscribers of The Gold Edge in a sector update in July, when the HUI was at 317 and change:

I will reiterate, I still believe that the HUI will eventually top in the 350-400 region over the next several weeks before it corrects. Actually, the low end of that range might be too low. It could be closer to 375. I didn't pick this region out of thin air, as there is key support/resistance at 375-400. I lean towards the HUI surging towards this highlighted area of resistance, and then possibly pulling back to current levels sometime in the fall of this year....If the HUI does peak in that range, then I would expect at least a decent sized correction back down to the 300-325 region over the coming months.


The HUI topped just below 375 in August, and at that point, I refined my target correction low for the HUI to 280-300, with the low end of that range as the most likely price objective. From a technical perspective, a retest of the 280-285 region made a lot of sense as it's a backtest of the breakout, and the 200-day was looking like it would intersect here as well. 

It's been my contention that the HUI isn't going to hit 250 during this correction. I believe the index is bottoming right now.


I felt the timing was right for a correction back in August given seasonality, the slowing of M2 growth, lack of new stimulus, uncertainty with the U.S. Presidential election, and of course, how overbought the sector was at that stage. Now I feel the timing is good for the reverse to take place, as the sector has now worked off those overbought conditions, GLD and the HUI are now at key support levels, M2 will get a shot in the arm (no pun intended) as it seems a new stimulus package will now come sooner rather than later, the election is seemingly out of the way, and the sector is close to entering a strong seasonal period.

Let's look at that last point in a little more detail.

December 15. Keep that date in mind. The sector almost always bottoms by that time. If you analyze the price action in the HUI (an index of gold producers) from December 15 to say the end of January in the following year, over the last 7+ years, there has been a consistent pattern of gains during those 1.5 months.

Below are performance charts of the HUI from December 15 - January 31 of the following year for each of the last seven years. The index averaged double-digit gains over those 1.5 months since 2013. For GLD, it has consistently gained 7% during that period for the last six years. While anything is possible this year, seasonality favors a rebound. I would argue, given how oversold the sector is at this stage, that the odds are good that this streak of gains will continue.

(Source: YCharts)

I believe the sector is bottoming now, but I expect the big gains will come from mid-December and onward. The next few weeks might be more about solidifying the bottom.

In August, I aggressively sold out of my mining stocks, significantly reducing exposure in order to: 1. protect substantial profits, and 2. have plenty of cash in anticipation of the likely correction - in order to take advantage of the decline and increase my outperformance.

I believe this is another incredible buying opportunity in GLD and the mining stocks. If one is looking to trade gold, I think GLD is the best option as it's the largest and most liquid physical gold ETF. Debates about gold-backed ETF products have been prevalent ever since these ETFs came into existence, and there will be debates about them for as long as they continue to exist. There is counterparty risk with GLD (the main complaint and concern), but the ease of buying and selling GLD, along with the low expense ratio, gives it a major advantage over physical gold.

Another significant advantage, and as I've mentioned before:

There's a premium paid on any physical gold purchase, which is one major drawback, especially for short-term holding periods. For example, the spot price of gold is currently $1,925 an ounce. If an investor wants to purchase a 1-ounce American Eagle, the current premium is about $100 per ounce (or 5%). If gold hits $3,000 in the next 2 years, the gain on the purchase is 48%, vs. 55% for GLD (taking into account the 0.40% annual expense fee). An investor might be able to close that gap somewhat if they receive a 1-2% premium on that 1-ounce American Eagle when they sell it, but the total return in GLD would still be 5 percentage points higher in that scenario. That doesn't even take into account the storage cost and cost to insure physical gold.

If an investor wants gold to make up a large percentage (10-20%, or more) of their portfolio and they plan to hold for the long term, then I think physical gold is the best option. For everything else, I believe GLD is the better route.

All of my new buying, though, is going towards the miners (not GLD), given their leverage and still cheap valuations. What most investors don't realize is the gold producers are having exceptional quarters as they are wildly profitable, even at $1,750 gold. It's highly likely that the HUI will surprise to the upside; I believe the index will be north of 400 next year. Many gold stocks are now very oversold, and I think there will be stellar gains from current levels. I'm now ramping up exposure again.

While I can't be 100% certain how things will play out, and there is still a chance that the gold sector declines further (just keep watch of the levels discussed to make sure key support holds), I feel that the fundamentals and technicals are signaling that a likely low is now forming. It's worth taking a risk and increasing exposure at this stage. 

Back to Liberal American Hegemony

Although Joe Biden's victory in the US presidential election has been met with sighs of relief around the world, America's European allies should not assume that its core strategic interests have changed. Still, Biden will bring a very different tone to US foreign policy, and, as the French say, it is the tone that makes the music.

Josef Joffe

HAMBURG – After four years of Donald Trump, his impending departure has sent hopes soaring. The Great Disruptor will be replaced by Joe Biden, an internationalist and institutionalist. He likes Europe and NATO, and, unlike Trump, he will treat America’s friends better than its traditional foes, including by honoring free trade. 

In the realm of security, he won’t clobber allies with threats amounting to “pay up, or we pull out!” Multilateralism will again guide American policy. It will be back to liberal hegemony instead of Trump’s narrow-minded illiberal version.

“Liberal” implies a rules-based international order, the promotion of democracy, and open societies. Trump not only ditched these principles, but also demonstrated a penchant for the world’s strongmen, alternately flirting with the likes of Russian President Vladimir Putin and North Korean dictator Kim Jong-un. (Of course, the United States’ coddling of Saudi Arabia cannot be pinned on Trump; every administration has adhered to the time-honored dictum: “He may be a bastard, but he’s our bastard.”)

Trump’s game was strictly zero-sum, especially on trade. This was a marked departure from the post-war American tradition, which stressed positive-sum outcomes in which both sides won. Trump dragged the world back to nineteenth-century power politics: states have no permanent friends, on this view, only permanent interests.

Naturally, we now hope for a restoration of the old liberal order. Some reconstruction will happen under Biden, a president schooled for nearly a half-century in the habits of America’s liberal empire. But note that Trump was not a total aberration. America’s shift toward “more for us” and “less for them” precedes the Tweeter-in-Chief.

Recall that while Trump ordered the withdrawal of thousands of US troops from Europe in 2020, Barack Obama’s administration (in which Biden served as vice president) did the same thing in 2012. For all of Trump’s Europe-bashing, Obama also groused that, “Free riders aggravate me.” 

It was he who initiated the retrenchment of US power in the Middle East, cutting troops in Afghanistan and Iraq while refusing to intervene against Bashar al-Assad’s chemical warfare in Syria.

When Trump promised to end America’s “forever wars,” he was merely copying Obama. It was his progressive predecessor who began to experiment with neo-isolationism, proclaiming that “it is time to focus on nation-building here at home.” 

Trump echoed that line by pledging a $1 trillion infrastructure program – “America First” for the sake of domestic development and welfare.

The point is to show that America’s inward turn predates Trump, and will not be completely reversed under Biden. After all, protectionism – holding off foreign competition – appeals to both the right and the left. 

A generous immigration policy was fine as long as Democrats were in the opposition, depicting Republicans as mean-spirited nativists. 

But the Biden administration will hardly throw open America’s doors to the world’s huddled masses and tear down those parts of the Mexican border wall built under Trump.

Nor will the Biden administration abandon the power competition with China, whose own protectionist policies and appropriation of intellectual property are an abiding source of tension. The US will continue to assert itself in the Western Pacific, where a classic rivalry between a rising land power and an established sea power is escalating. 

Democrats and Republicans are largely committed to Containment 2.0, corralling regional players such as India, Japan, South Korea, Taiwan, and Australia.

In the Middle East, Biden has already confirmed that he will try to restore the Iran nuclear deal, albeit not in the well-meaning ways of his old boss, Obama. The incoming administration will leave intact the new anti-Iran alliance between Israel and Arab Gulf states, and it will not repeat the Obama administration’s mistake of pursuing a “reset” with Russia.

Since 2009, Putin’s Russia has turned into an expansionist power pressing on Europe, North Africa, and the Middle East. While Europeans cheer Biden’s victory, they should be prepared for renewed American demands that they increase their defense spending. 

By the same token, Germany should expect more US pushback against the Nord Stream-2 pipeline, a joint Russian-German project that bypasses Eastern Europe and increases Germany’s energy dependence on Russia.

Even as Biden presents himself as the anti-Trump, he will continue to pursue some of the same core US strategic interests when it comes to China, Russia, and commercial competition with Europe. Still, as the French say, it is the tone that makes the music. 

The Biden administration will bring a most welcome change to the style of US diplomacy, replacing Trump’s brutishness with well-mannered professionalism.

As in private life, respect and civility go a long way in international relations. Beyond improving the tone, Biden will pursue fewer zero-sum, and more positive-sum, games. 

He will focus on common interests and seek to restore American leadership by winning consent, rather than through boorish unilateralism. For example, he intends to stop the withdrawal of US troops from Europe ordered by Trump.

In abandoning Trump’s “America First” doctrine, Biden will offer relief – but not a free lunch – to the rest of the Western world. As he wrote earlier this year in Foreign Affairs, his administration’s “policy agenda will place the United States back at the head of the table,” where it will lead “not just with the example of our power, but also with the power of our example.”

At the end of the day, however, power is power, and American power remains unrivaled across the board. All those who feared and despised Trump should be reassured by the 2020 election result. Biden will undoubtedly wield America’s mighty sword more judiciously, and with a friendlier face. 

Come Inauguration Day in January, America will be open for business once again. But the world should be prepared for some hard bargaining.

Josef Joffe, a fellow at Stanford University’s Hoover Institution, serves on the editorial council of the German weekly Die Zeit. 

The Strangeness of an Analytic Life

Thoughts in and around geopolitics.

By: George Friedman

I have spent a good part of my life as an analyst, and for the past quarter-century as an analyst of geopolitics – the impersonal forces that shape nations and their relations to each other. I have also spent my life as an American, grateful for the refuge it gave me, and in love with its greatness and pettiness. 

Like people, nations have character, and none is without flaws, however obvious or hidden they may be.

The virtue of an analyst is indifference. The world is filled with people who have strong views of what should be, of what makes a good leader, of the strength or weakness of policies. Having opinions is one of the great pleasures of human life. 

We are filled with opinions on all manner of things, judging the world as well as the moral standing of those with different opinions. 

I once had an argument with someone who actually believed that the Boston Red Sox were intrinsically better than the New York Yankees. We raged and drank and made up statistics and took enormous pleasure from the argument. 

Even when we rage against someone we truly loath, there’s pleasure derived from expressing our opinion. Rage is a sort of aphrodisiac.

Most of us have little power. Our own lives are shaped by massive and impersonal forces over which we have little control. Our jobs become obsolete, viruses plot against our lives, our bodies rebel against us. 

But opinions are the realm in which we are free and in control. 

We can believe what we want, and in many countries we can even say our opinions out loud. They give us a semblance of control our lives deny us. Opinion even is not answerable to truth or falsehood. 

It even has power over the past, as we debate who did what to whom and when, with lies and false memory in command.

Every profession demands that you surrender something of profound interest and pleasure. My profession demands that I give up the pleasure of having opinions. The self-evident virtue of the Yankees is granted me. Judging nations and politicians is not. 

The foundation of my work is that history is not made by individuals who may appear all-powerful but by impersonal and complex forces that shape, elevate and destroy leaders and nations according to its logic and laws. 

Seven billion people do not create history, nor does one leader with strongly held opinions. 

History is made by the forces generated by 7 billion people pursuing their own ends in a world they did not make.

My job, the one I chose for myself, is to understand those forces and to create a roadmap for humanity. Some choices are ours and I chose this one. 

Or more precisely, born in Europe just after World War II and the holocaust, becoming conscious in the Cold War and anticipating my death at the hands of nuclear war, and watching the permanent and awesome Soviet Union crumble, I quickly learned that my control of history is non-existent, and that what seems obvious frequently isn’t. 

So my choice was less a choice than the recognition of reality. 

As Karl Marx put it, “Men make their own history, but they do not make it as they please.”

So my childhood taught me that I did not have the power to shape my world, but if I could understand it, I could predict its course. And if I could predict its course, I could stay out of its way. 

Living in America stole my fear of history. Here it was possible to believe that all things are possible, that you are the master of your fate, and that others would not dare disrupt your nation. 

These are dubious assumptions, but I absorbed them to the point of trying to map coming events as an intellectual enterprise rather than as an existential necessity.

This was essential to my work. It freed me from evaluating events based on the potential effect they might have on my life and allowed me to see things in a way the partisan and opinionated could not. People with opinions know what should happen and also what shouldn’t have happened. 

They understand good and evil. The job I chose was to understand why the past was what it was, and to understand why what is happening happened, and to understand from the forces I have seen what the future holds. 

I no longer believe in the permanent invulnerability of my country, but I continue to force myself to avoid opinions on what the world should be like. I cannot change the world, but perhaps I can understand it. I will leave it to others to judge my success.

For me, the cost is the pleasure of opinion. If I don’t forfeit my opinions, I will confuse what I wish will happen for what I think will happen. There is a tragedy here. I love the United States with the passion only a refugee can feel. 

It has given me a life where the world I was born into was filled with death. The hardest thing I can do, but absolutely must, is to view the United States as something other than a nation-state. The work I do demands that every event be viewed clinically, against a history of such events, and before the history of future events. 

If I don’t take that view, then what little I have been able to achieve in my life is washed away. I cannot celebrate my love, and cannot condemn it.

An analyst cannot take sides, not even in something as fraught as last week’s presidential election. An analyst must understand why the election was fought as it was, and what will come next. 

It is like a fantastic party is being held next door, and you are invited but have to turn it down. I love the responses I get from readers, some accusing me of supporting President Donald Trump, as if it were obvious that no reasonable people can, some accusing me of opposing Trump, as if no reasonable people might. 

I feel like a monk, barred from the pleasures of human life. Or at least the pleasure of arguing opinions beyond the obvious and eternal excellence of the Yankees.