Perfect Storms

By John Mauldin 


Having been Puerto Rico residents for almost three years now, Shane and I have learned a few things about living in the tropics. 

In Dallas, we didn’t often think about hurricanes, though we did have tornadoes and severe thunderstorms. 

Ditto for earthquakes. 

North Texas is pretty stable, geologically speaking.

Now hurricanes and earthquakes are part of normal life. 

We expect them to happen, and indeed they have happened since we came here. 

They weren’t too bad but could have been much worse. 

So, we have plans and precautions to deal with them, as does everyone else here. 

Last year, a hurricane came through and decided to drench the eastern part of the island and simply miss us. 

We had no wind or rain. 

But we were prepared, as were our neighbors. 

It’s just part of life. 

But then that same storm tragically devastated the Bahamas.

I was thinking about this in connection with my Sandpile letter, which we again reposted recently. 

Like those fingers of instability, our ability to predict the weather is far less than perfect. 

Technology can tell us when hurricanes/tropical storms are out there and the general direction they are moving. 

It’s still far from certain exactly where they will make landfall, and how strong they will be at the time. 

They can leave one corner of this small island devastated and the rest untouched.

So, the prudent course is to prepare for the worst, hope for the best—a trite saying but in this case it’s true. 

We would rather be overprepared than caught by surprise.

Investors face hurricanes, too, with even more uncertainty. 

The storm could hit someone else, or go back out to sea and dissipate. 

Do you bet everything that it will? 

I don’t.

Right now, several potentially big storms are brewing. 

They could be minor annoyances or catastrophic disasters, or anywhere in between. 

I truly hope they all resolve with minimal fuss. 

But they may not. 

They could even combine into a perfect storm of even greater magnitude… so now is the time to prepare.

Hitting the Ceiling

I’ll describe several related but independent problems. 

The first one is US federal debt, which is approaching its limits. 

Literally so; the statutory debt ceiling, which Congress suspended for two years back in 2019, took effect again this month. 

The Treasury is now shuffling books to buy some time but we will reach the $28.5 trillion limit in the next few weeks.

Unlike the Federal Reserve, Treasury can’t create money. 

It manages the government’s cash flow by issuing new debt as needed to pay for the spending Congress approves. 

It has discretion on when to borrow, and in what amounts, so “cash on hand” can vary a lot. 

Treasury built up a huge cash balance last year and has been drawing it down in 2021, as this Gavekal chart shows.


Source: Gavekal Research


The blue line is Treasury’s “target balance” needed to cover the spending it knows will occur. 

Notice that the target balance increased rather dramatically at the beginning of the COVID crisis and it has not changed. 

The actual balance (red line) plunged this year and is now almost $500 billion below the target, and headed lower still.

The “easy” solution is for Congress to raise the debt ceiling, which obviously doesn’t restrain actual spending, and may actually increase spending by letting them postpone more effective reforms. 

But, as with everything else these days, that collides with other issues and becomes a political fight.

Congress is presently considering two infrastructure bills, the smaller of which has modest Republican support and is actually what we mostly think of as infrastructure, plus a much larger “human infrastructure” plan the Democrats will try to pass on their own. 

It includes universal preschool, free community college, and subsidized long-term healthcare as well as a host of other government benefits.

It is not clear the second bill can pass, as some moderate Democrats are not fully aboard. 

They could, and I suspect will, attach a debt ceiling increase to that bill. 

But regardless, they have to somehow modify the debt ceiling soon. 

If they don’t, some government spending will have to stop and Treasury debt holders may miss interest payments—the kind of thing that would constitute “default” for a private borrower.

The chances of this actually happening are small, but very real. 

Having been through this what seems like a dozen times, there will be lots of drama and then the debt ceiling will be increased.

All this has market impact even if ultimately resolved. 

Government spending and borrowing is critical to bond market liquidity. 

When this last happened in 2019, the related liquidity crisis forced the Fed to end its attempt to normalize policy. 

The FOMC decided in an October 4, 2019, secret meeting, unrevealed until a week later, to permanently add reserves to the system.

As I said at the time, “We have reached a point where the Fed believes it must have nuclear weapons just to swat flies.” 

A few months later COVID came along and the Fed enthusiastically fired those nukes. 

That brings us to the next problem.

Choose Your Poison

This week is the Fed’s Jackson Hole retreat—again virtual this year, but still an important policy decision point. 

Powell’s Friday morning speech was basically a nonevent. 

He did signal the initial taper could begin this year if all goes well. 

The speech was uber-dovish overall.

Is the Fed really going to take its foot off the gas when Congress may ensure Fed support is needed more than ever? 

Hard to believe.

A further complication, as I discussed recently in Policy Errors Have Consequences, is the Fed’s own leadership is uncertain. 

Powell’s term as chair expires soon. 

President Biden still hasn’t announced whether he will renominate Powell or appoint someone else, although, as Peter Boockvar said, this speech did sound like someone campaigning to retain his job.

Treasury Secretary (and former Fed chair) Janet Yellen wants Powell to stay. 

This week we learned that much of the White House staff also wants Powell reappointed. 

While progressive Democrats wanted Biden to appoint Lael Brainard or another uber-dove, Powell increasingly seems like the likely choice.

Why suddenly shift back to Powell? 

The highly connected Harald Malmgren has a theory, stated succinctly in a recent tweet.


Source: Twitter


Read that a few times to let the implications sink in. 

Then remember this year’s recovery depended heavily on massive fiscal spending—stimulus payments, unemployment benefits, etc. 

The bipartisan infrastructure bills, while massive, will be spread over years and have less immediate effect. 

And if the White House now believes the second infrastructure bill’s passage is in jeopardy, then it is certainly worried about next year’s economic prospects.

In that case, they need a credible dove in charge at the Fed. 

Powell fits that bill, with the understanding he is to keep the economy moving even if Congress is paralyzed. 

How would he do that? 

Beats me. 

Monetary stimulus doesn’t have the kind of direct impact fiscal stimulus does. 

Powell himself (and before him Greenspan, Bernanke, and even Yellen to some degree) has been saying so for years. 

That raises the possibility of not just continued or additional QE, but other as-yet-untried stimulus tools.

This would mean we are between a rock and a hard place. 

Passage of the two infrastructure bills would push federal debt even higher than the already-unsustainable level. 

But if not passing those bills will make the Fed go nuclear on steroids (sorry, I lack suitable metaphors to describe all this), an outcome I predicted we would see a few years down the road, then it just means the monetization process begins earlier.

Stimulus, Inflation, and Monetization

Although it is not portrayed this way in the headlines, Nancy Pelosi actually did compromise. 

The so-called “Unbreakable Nine” (which is now theoretically 10) simply agreed to allow a discussion about the human infrastructure bill in return for a “date certain” vote on the bipartisan infrastructure bill. 

Which is basically exactly what happened in the Senate. 

Now here’s where it gets tricky.

First, the current cost of the human infrastructure bill is $3.5 trillion. 

Kind of, sort of. 

Rather than the normal 10-year projections, they are projecting some of the spending for five years since it theoretically could expire. 

If you project those same programs out over 10 years, the bill’s cost grows to well over $5 trillion. 

As Milton Friedman so wittily observed, “There is nothing so permanent as a temporary government program.”

Senator Kyrsten Sinema (D-Arizona) says she won’t vote for a $3.5 trillion bill. 

Senator Joe Manchin (D-West Virginia) has said the same. 

My sources tell me the tax increases required to pay for such a bill are the key sticking points. 

What we don’t know is how much of a tax increase the key players will accept. Is it a 3–4% increase in corporate taxes? 

A 5% increase in capital gains? 

Higher capital gains rates for those making over $400,000? 

We simply don’t know. 

But my educated suspicion is the tax increases will dictate the ultimate size and content of the bill.

Getting the votes won’t be easy. 

The House progressives want a guarantee on the human infrastructure bill before they support the bipartisan bill, and it doesn’t have enough Republican support to pass without them. 

Nor can either bill pass without the moderate House Democrats, who are seeking re-election in Republican-leaning districts. 

There is literally no telling what will happen in the next month. 

I see a reasonable chance both bills pass, with the “human infrastructure” bill significantly reduced, but also a nontrivial chance neither passes. 

Both sides have begun digging in their heels.

The immediate consequence is a little clearer. 

I think the Fed will wait until Congress somehow resolves these spending and debt ceiling issues before it makes any taper decisions, even though Powell says they may start tapering this year. 

The White House may be waiting as well before announcing Powell’s reappointment, even though he seems to have the necessary support.

All this means a month or two of uncertainty and guesswork, potentially sparking some market fireworks. 

And next year? 

Choose your poison. 

None of the likely outcomes are good for the economy. 

Though, oddly, more QE might boost asset prices.

But in one asset class, we have another problem brewing.

Supply Surge

One of the pandemic’s more surprising effects has been a boom in housing prices and home construction. 

It’s partly logical; in an era where we spend more time at home, cities have less allure and people want space. 

Some urban residents are moving to suburbs and rural areas, driving up prices. 

But that’s not all.

For one, we have a long-term trend in effect. 

The Millennial generation is forming households and needs starter homes. 

This has been the case for some time, as my friend Barry Habib has been saying (see Tiny Housing Bubbles) and will go on several more years.

Add to that the pandemic stimuli. 

The Fed’s mortgage bond purchases have essentially capped mortgage rates at a historically low level. 

But probably more important, cheap borrowing and low yields elsewhere incentivize investors to buy/build homes for rental, generating higher yields than they can get from other fixed income instruments. 

This is just another form of private credit, and with a little leverage can produce high single-digit yields, for which there is clearly high demand.

And on top of that, the various forbearance programs have kept homes that would otherwise be for sale (voluntarily or via foreclosure) off the market. 

This reduced supply helps boost prices. 

The effect has been significant... and it’s about to end.

My good friend (and fellow Puerto Rico resident) Harry Dent pointed out last week that almost 1.8 million homes are now in forbearance. 

These owners will have to resume making payments soon. 

Some will be able to do so, others won’t. 

What next? 

Here’s Harry.

Zillow estimates that 25% of these forbearances will end up on the market, as the owners cannot sustain their mortgages when they are forced to pay them again, but they allow that number could be as high as 50%.

In my scenario, the number starts around 25%, adding to recession pressures that then rapidly turn that number to 50% and ultimately to more like 100% before the recession bottoms by late 2023 or so. 

[JM: Clearly Harry is more bearish on the economy that I am, but he does have a point.]

…The point is this: Home prices are about to peak, as sales have fallen 23% already since January due to rising unaffordability. 

Home prices will start to fall with rising inventory, which mostly will hit by the end of November. 

Falling home prices and sales guarantee we’ll get a recession, as housing has been the strongest recovery sector as a result of extremely low mortgage rates from the unprecedented stimulus that has gone on for 13 years.

Here’s the chart from Zillow via Harry:


That’s scary enough, but it’s not all. 

Many homeowners who haven’t sold, and have no desire to, have used this time to refinance and in some cases pull cash equity out of their homes. 

Similarly, homebuilders and contractors have added debt to buy properties, materials, and equipment. 

All this added leverage could become problematic in a recession/falling home price environment. 

And we know how debt problems cascade through the economy.

Now, recognize this problem could blow up just as the Fed is trying to either normalize or get more aggressive, and Congress is unable to agree on any kind of helpful response. 

It’s a bit like living on a tropical island and seeing on TV that three different hurricanes are all headed your way. 

I can assure you, it won’t be a good feeling. 

It might make Shane and me get on an airplane and show up on your doorstep.

But Wait, There’s More

Those of us of a certain age remember the late-night infomercials by the legendary Ron Popeil, who passed away last month. 

His classic line was, “But wait, there’s more!” 

As if all of the above weren’t concerning enough, there’s more.

  1. As of Friday morning, five out of five regional Fed presidents have come out in favor of tapering earlier than waiting till next year. Most indicated they are worried about inflation.
  2. And inflation is a problem. Taiwan Semiconductor just raised their prices 20%. Hong Kong/LA container prices are almost doubled since the beginning of the year, and 4X since last summer.


Source: Peter Boockvar


Inflation (CPI) is running well north of 5% and looks to be picking up steam. The longer the Fed goes without tapering and raising rates, the longer “transitory” inflation will last. I do not believe this Fed will make the mistake that Arthur Burns did in the 1970s by doing nothing and then allowing inflation to get to 10% plus.

  1. Thus, Powell will be under pressure to begin tapering sooner than the market thinks. A slowing economy and rising inflation? Can you say stagflation boys and girls? Do you want to run for reelection in 2022 on that premise? How do you think the market will react? Me too.
  1. Long COVID, a very debilitating disease that now affects more than 15 million Americans, could see as many as 1 ½ million Americans on disability which is almost 1% of the work force. GDP is simply the number of workers times productivity. If you reduce the number of workers without raising productivity, GDP will drop.
  1. Consumer spending came in weak Friday morning. Part of it is COVID and part of it is stimulus is beginning to go away.

I wrote pre-COVID that I thought the 2020s would see much closer to 1% real GDP annual growth than the 2% we have been experiencing for two decades. 

Debt pressure is inexorable. 

Then COVID came along and simply blew out all the prior debt projections. 

I’ve said we were looking at $50 trillion by 2030. 

I now think it will be at least another $5 trillion more and maybe double that. I don’t believe the bond market can handle that by itself.

The same logic that made me project early in the last decade that the Bank of Japan would monetize Japanese debt at levels nobody then thought possible makes me think the Federal Reserve will do the same thing. 

I firmly believe a $25 trillion+ Federal Reserve balance sheet is likely by the end of this decade.

That level of balance sheet debt, which will be duplicated percentagewise in Europe, means the developed world, including the US, will be lucky to grow 1% by the end of the decade.

That’s not a disaster, as both Europe and Japan are wonderful places to live. 

But it means traditional investment portfolios, especially passive index funds and bond funds, are not going to perform anywhere nearly as well as they have in the past. 

You are going to need to develop a completely different approach to investing if you want to see your portfolio grow on average in the high single digits.

On the investment side of my business (separate from Mauldin Economics) we look for strategies that will still work in this low-growth world. 

If you want to discuss some of these opportunities just click here

I guarantee you it’s worth a phone call to learn what’s in the Mauldin Kitchen. 

You don’t have to take a full menu—you might find some ingredients which will please your investing palate. 

(In this regard, I am chief economist and an investment advisor representative of CMG Wealth.)

Normalization, Travel, and Booster Shots

I’m not certain what “future normal” looks like, but it is not going to look like 2019. 

I think my life of 200–250,000 airline miles a year is over. 

I might not see 100,000 again. 

Many of those miles were for international speeches, and it will be years before they return, if ever.

As Mike Roizen and I keep saying to each other, this is just a damn tricksy virus. 

He was telling me earlier this summer the boosters would be after six months. 

And now it gets announced this week. 

Hopefully I get mine in October. 

COVID may be around for more than a few years, with booster shots somewhat like the annual flu shot. 

We’ll learn to live with the reality and get on with our lives. 

I used to travel with Theraflu packets in my briefcase as a precaution. 

Still do. I am not certain what I will carry in the future, but I do plan to get on planes.

I plan to travel to meet clients and prospects at least once a month and I always enjoy New York. 

I will be in Dallas prior to Thanksgiving and south of Fort Worth at Lake Granbury for Thanksgiving. 

It will be good to see family and friends.

This month marks my 22nd year of writing this letter. 

Many of you have been with me since the beginning. 

Some are brand-new. 

But I appreciate the attention each and every one of you give me. 

Time is the greatest gift anyone can give in a world of constant demand for our time. 

Thank you! 

Have a great week!

Your curious to see what our politicians will do analyst,



John Mauldin
Co-Founder, Mauldin Economics

Chief executives are the new monarchs

The habits and flaws tycoons share with dynastic rulers


In the early 15th century many of the Portuguese voyages of discovery around Africa and into Asia were financed by Prince Henry of Portugal, whom historians dubbed “Henry the Navigator”. 

When Christopher Columbus sought finance for his planned westward voyage to the “Indies”, he first turned to the king of Portugal before achieving success with Ferdinand and Isabella of Spain. 

Monarchs financed explorations because they believed such trips would boost their power and their treasuries.

In the 21st century corporate executives have become deeply involved in adventure and exploration. Sir Richard Branson of Virgin and Jeff Bezos of Amazon have just travelled to the edge of space. 

Elon Musk of Tesla has developed the SpaceX programme and is talking of the eventual colonisation of Mars. 

Messrs Musk and Bezos competed for the contract to operate future Moon landings. 

Mr Bezos even offered to part-finance the project.

In itself, this is a remarkable development. 

Sixty years ago, when the space race was between America and the Soviet Union, few could have imagined that individual businessmen would ever have the resources to enter the fray. 

The shift says something about the extremes of wealth in the 21st century.

The resemblance to absolute monarchs does not stop with exploration. 

Like past rulers, modern tycoons build their own monuments in the form of corporate headquarters, not just skyscrapers in London and New York but the vast, low-rise campuses in Silicon Valley. 

Whereas the ancient dynasts travelled in horse-driven coaches, modern ceos separate themselves from the public in chauffeur-driven limos and private jets.

Like monarchs of old, executives have to deal with rival sources of power. 

They face the equivalent of feudal barons, in the form of boards of directors who may try to unseat them. 

And they need to contend with ambitious princelings, who in the modern era are younger executives who would like their job. 

The good news is that whereas an unseated monarch was likely to be executed, a dethroned boss can enjoy a generous pay-off.

Then there is their ability to control time. 

At the court of Louis XIV, France’s “Sun King”, the rhythm of the day was entirely devoted to the monarch’s habits, with the luckiest courtiers watching him get dressed, have lunch and go to bed. 

Modern ceos also have the ability to change the schedules of those around them. 

If he or she gets up at 5am to send messages, someone on the staff will feel obliged to rise early and answer them. 

Similarly, if the ceo likes to hold Zoom conferences on weekends, or have working dinners on a Friday night, the family life of subordinates will suffer.

Another parallel with monarchs is a tendency towards arrogance. 

In his book “Fall”, John Preston recounts that when Robert Maxwell, the publishing tycoon, was dissatisfied with his food, he would sometimes sweep the plate on to the floor and leave others to clear it up. 

Maxwell also bugged the phones of his staff and listened to their conversations, which also recalls Louis XIV, who intercepted the mail of his courtiers.

Lavish entertainment is a further common denominator. 

Monarchs held elaborate balls and competed to show off their wealth. 

Modern tycoons pay rock stars to perform at their birthdays. 

Carlos Ghosn, the boss of Nissan, even held an extravagant party at the Sun King’s former digs in Versailles.

Royal dynasties added to their empires through both military conquest and strategic marriages. 

Modern executives achieve the same effect through mergers and acquisitions, using their financial clout to buy smaller rivals and reduce the threat of disruptive competition. 

In effect, ancient monarchs were monopoly providers of security services, who received payment in the form of taxation and conscription. 

Their abiding sin was too much ambition; Philip II of Spain’s military overreach in battling England and the Netherlands was followed by the country’s steady decline as a global power, for example.

The same trap awaits modern tycoons. 

Often they make the mistake of taking on too much debt by acquiring businesses that do not mesh with the rest of the enterprise. 

Or, like many an ancient ruler, they make the mistake of fighting on two fronts. 

Space-obsessed Mr Bezos is still executive chairman of Amazon. 

Mr Musk is trying to make both rockets and Tesla cars. 

The greatest danger to monarchs may come when they seem at the height of their powers. 

Investors in Xi’s China face a rude awakening

The leader’s crackdown on private enterprise shows he does not understand the market economy

George Soros

Xi Jinping regards all Chinese companies as instruments of a one-party state © Li Xueren/Xinhua/AP


Xi Jinping, China’s leader, has collided with economic reality. 

His crackdown on private enterprise has been a significant drag on the economy. 

The most vulnerable sector is real estate, particularly housing. 

China has enjoyed an extended property boom over the past two decades, but that is now coming to an end. 

Evergrande, the largest real estate company, is over-indebted and in danger of default. 

This could cause a crash. 

The underlying cause is that China’s birth rate is much lower than the statistics indicate. 

The officially reported figure overstates the population by a significant amount. 

Xi inherited these demographics, but his attempts to change them have made matters worse. 

One of the reasons why middle-class families are unwilling to have more than one child is that they want to make sure that their children will have a bright future. 

As a result, a large tutoring industry has grown up, dominated by Chinese companies backed by US investors. 

Such for-profit tutoring companies were recently banned from China and this became an important element in the sell-off in New York-listed Chinese companies and shell companies. 

The crackdown by the Chinese government is real. Unnoticed by the financial markets, the Chinese government quietly took a stake and a board seat in TikTok owner ByteDance in April. 

The move gives Beijing one seat on a three-person board of directors and first-hand access to the inner workings of a company that has one of the world’s largest troves of personal data. 

The market is more aware that the Chinese government is taking influential stakes in Alibaba and its subsidiaries. 

Xi does not understand how markets operate. 

As a consequence, the sell-off was allowed to go too far. 

It began to hurt China’s objectives in the world. 

Recognising this, Chinese financial authorities have gone out of their way to reassure foreign investors and markets have responded with a powerful rally. 

But that is a deception. 

Xi regards all Chinese companies as instruments of a one-party state. 

Investors buying into the rally are facing a rude awakening. 

That includes not only those investors who are conscious of what they are doing, but also a much larger number of people who have exposure via pension funds and other retirement savings. 

Pension fund managers allocate their assets in ways that are closely aligned with the benchmarks against which their performance is measured. 

Almost all of them claim that they factor environmental, social and corporate governance (ESG) standards into their investment decisions.

The MSCI All Country World Index (ACWI) is the benchmark most widely followed by global equity asset allocators. 

An estimated $5tn is passively managed, which means that it replicates the index. 

A multiple of this amount is actively managed, but it also closely tracks the MSCI index.

In MSCI’s ACWI ESG Leaders Index, Alibaba and Tencent are two of the top 10 constituents. 

In BlackRock’s ESG Aware emerging market exchange-traded fund, Chinese companies represent a third of total investments. 

These indices have effectively forced hundreds of billions of dollars belonging to US investors into Chinese companies whose corporate governance does not meet the required standard — power and accountability is now exercised by one man who is not accountable to any international authority.

The US Congress should pass a bipartisan bill explicitly requiring that asset managers invest only in companies where actual governance structures are both transparent and aligned with stakeholders. 

This rule should obviously apply to the performance benchmarks selected by pensions and other retirement portfolios.

If Congress were to enact these measures, it would give the Securities and Exchange Commission the tools it needs to protect American investors, including those who are unaware of owning Chinese stocks and Chinese shell companies. 

That would also serve the interests of the US and the wider international community of democracies.

SEC chair Gary Gensler has repeatedly warned the public of the risks they take by investing in China. 

But foreign investors who choose to invest in China find it remarkably difficult to recognise these risks. 

They have seen China confront many difficulties and always come through with flying colours. 

But Xi’s China is not the China they know. 

He is putting in place an updated version of Mao Zedong’s party. 

No investor has any experience of that China because there were no stock markets in Mao’s time. 

Hence the rude awakening that awaits them.


The writer is chair and founder of Soros Fund Management and the Open Society Foundations. 

Afghanistan Disaster

Debacle in Kabul Could Overshadow Biden's Presidency

U.S. President Joe Biden wanted to end the war in Afghanistan and pull America's troops out as quietly as possible. Instead, the chaos and the bloodbath in Kabul could cripple his presidency.

By René Pfister in Washington, D.C.

American Commander-in-Chief Joe Biden Foto: Erin Scott - White House / ZUMA Wire / imago images


He came up with a special punch line for the sultry Saturday night. 

A giant American flag appeared on the screen, with George Patton, played by actor George Scott, in front of it. 

"Americans love to fight," exclaimed the legendary U.S. general from World War II. 

"That’s why Americans have never lost and never will lose a war. 

The very thought of losing is hateful to Americans." 

It's the speech Patton gave to the United States Third Army before it made its way across the English Channel after D-Day.

Donald Trump has never been a man of subtle messages. 

When he took to the stage after the video, he immediately made clear what he was getting at. 

The U.S. just experienced the greatest humiliation in its history, the former president said to cheers from his fans, who had been waiting on a muddy field since the afternoon. 

"Vietnam looks like a masterclass in strategy compared Joe Biden’s catastrophe."

Trump had actually flown to Alabama to cheer himself up. 

He doesn’t need to campaign in the area – 88 percent of voters in Cullmann Country cast their ballots for him in the last presidential election. 

But on Saturday evening, the former president realized he had finally found an issue with which he could attack his successor.

The journalist George Packer recently wrote in The Atlantic that Trump possesses a "reptilian genius," and there is unlikely another term that better encapsulates Trump’s political talent. 

He’s neither a clear analyst nor a shrewd strategist, but he knows how to strike at the right moment. 

Biden’s plan had been to withdraw from Afghanistan as quietly as possible and boost his popularity by ending an unpopular war. 

Now, following a whole slew of amateurish decisions, he has achieved the exact opposite: American television broadcast images on Thursday that could hardly have been any more dramatic. 

They showed the torn bodies of people who had fled in desperation to the Kabul airport to catch one of the last planes out of the country.

The bombing, which the U.S. military claims was carried out by the terrorist group Islamic State (IS), killed at least 80 people, including 13 American soldiers. 

Just as serious, though, is the fact that the tense situation is making it increasingly difficult for the Americans to fly out hundreds of U.S. citizens that the State Department says are still stuck in Afghanistan. 

And Biden’s promise that Afghanistan won’t become a new hotbed of terrorism after the troop withdrawal already sounds like a bad joke. 

The president promised in a press conference on Thursday night that he would hold those behind the attack accountable. 

"We will hunt you down and make you pay," he said. 

But it also means that Biden is being dragged further into a conflict that he actually wanted to get out of.

Unnecessary Chaos?

A president’s political authority always depends on whether Americans have confidence in his leadership abilities. 

Now, however, the world is looking to a man in the White House who pushed withdrawal at such breakneck speed in part because he wanted his soldiers to be back home before the 20th anniversary of the Sept. 11, 2001, terrorist attacks. 

It is becoming clear that all reason has been sacrificed to that symbolism. 

And it is not only the Afghans left behind in the panic of the last few days who are paying the price. 

The grotesquely amateurish management also weakens a U.S. administration that promised when it took office in January to resume a stronger role on the world stage.

Biden’s rationale for the quick withdrawal was also to free up resources for the truly pressing problems in global politics: a rising China that wants to impose its rules around the globe; or Russia, which is in the process of undermining Western democracies with its armies of online trolls. 

But who is supposed to believe in the leadership of a U.S. government that allows itself to stumble into this kind of chaos unnecessarily?

Only six weeks ago, Biden had declared that under his leadership, there would be no images like those seen in Saigon in 1975, when American helicopters evacuated diplomats from the roof of the U.S. Embassy. 

Ultimately, he was proven right. 

Scenes far worse are burned into the world’s collective memory now: desperate Afghans clinging to an American military transport and then falling from the sky.

In Washington, the "blame game" for the disaster is well underway. 

Is it Secretary of State Tony Blinken, whose State Department only set up a task force in July – three months after the decision to withdraw – to deal with issuing visas to local Afghan workers who had helped the Americans? 

Most likely to roll could be the head of Biden’s national security adviser, Jake Sullivan, whose job should have been that of coordinating the withdrawal.

"One thing is certain: You cannot look at the situation and claim that everything went smoothly," says Laurel Miller, who served as the U.S. government’s acting special representative for Afghanistan and Pakistan under President Barack Obama. 

Members of the Biden administration get even more explicit, as long as you don't quote them by name. 

"We totally botched this thing," says one. 

And the dangerous thing is that the chaos could overshadow Biden’s entire presidency.

Ugly Images from Kabul

Biden got off to a respectable start in terms of domestic policy: Just after entering office, he pushed through a $1.9 trillion economic stimulus package. 

He also managed to get the coronavirus vaccine into American drugstores and doctors’ offices with impressive speed. But now the pandemic is returning because many Americans, particularly in the South, are refusing to get vaccinated. 

At the same time, the ugly images coming out of Kabul are fueling doubts about whether Biden is really the far-sighted and empathetic politician he made himself out to be during the campaign. 

In the American press, parallels are already being drawn with the ill-fated Jimmy Carter, whose presidency failed to recover from the debacle of the failed hostage rescue at the U.S. Embassy in Tehran in April 1980, and who was succeeded shortly afterward by the Republican Ronald Reagan.

NATO soldiers assist with the evacuation effort at the Kabul airport: The "blame game" has already begun in Afghanistan. Foto: STAFF SGT. Victor Mancilla / UPI Photo / imago images


Biden never believed it was the U.S.’s job to build a functioning state in Afghanistan, says Vali Nasr, who worked for Hillary Clinton’s Afghanistan envoy Richard Holbrooke and now teaches political science at Johns Hopkins University. 

Holbrooke, who died in 2010, meticulously documented his own work, and that’s how an anecdote survived that illustrates how emotional the subject of Afghanistan was for Biden even more than a decade ago.

As vice president at the time, Biden had been unable to sway Obama who, on the advice of his generals, ordered a massive increase in troops in Afghanistan. 

When Holbrooke warned Biden in a confidential conversation of the consequences of a hasty withdrawal and reminded him of the responsibility for those Afghans who trusted the word of the United States, the vice president reportedly hissed: "Fuck that, we don’t have to worry about that. 

We did that in Vietnam, Nixon and Kissinger got away with it." 

Biden apparently calculated even then that a president would not be judged by the chaos of a withdrawal but by the courage to end an unpopular war.

"The Washington political establishment and the media spent years avoiding the truth about this war," says Matt Duss, left-wing Senator Bernie Sanders’ foreign policy adviser. "

And now they are trying to put the blame for this disaster on Biden alone." 

That is just not right, he says.

What is true about this is that more than two-thirds of Americans supported Biden's decision to withdraw from Afghanistan in April. 

But as images of the Taliban’s march on Kabul flickered across television screens, that figure dropped dramatically – to 49 percent. 

At the same time, Biden’s approval ratings are slipping below the 50-percent mark for the first time since he took office. 

The Americans appear to be more averse to the feeling of having bearded fighters with old AK-47s thumbing their noses at them than by the war in Afghanistan itself.

A former Afghan security official told the New York Times that Kabul is threatening to become a Las Vegas for terrorists from around the world. 

But political scientist Nasr believes that the Taliban have learned from their mistakes and will not allow the al-Qaida terrorist network to spread in the country under their regime again.

However, the Taliban are only in command of a few tens of thousands of fighters, a number that is too small for them to truly be able to control a vast country of over 38 million people. 

"The Taliban could finance a guerrilla war with drug money," Nasr says, "but they cannot run a country like that." 

Nasr adds that it would be a nightmare if Afghanistan were to turn into a patchwork of ungovernable provinces.

"I don't think the threat is the Taliban government," he says. 

"The the biggest threat to the West is no government."

Stable coins’ rise has echoes of Bretton Woods

A half-century on from the decision that defined the current monetary set-up, calls are mounting for a new ideas to address old monetary problems

Guest post

     © AP


Fifty years ago, an embattled Richard Nixon dropped a monetary bombshell: the dollar would no longer be pegged to gold. 

The currency markets were thrown into chaos as the mechanism that underpinned fixed exchange rates was killed off overnight. 

The Bretton Woods era had ended and a new monetary order took shape.

Until now, it has lasted without serious challenges. 

For many currencies, floating rates remain the norm. 

Bar the euro, there have been no other major multilateral attempts to return to a system of fixed exchange rates.

But the introduction of so-called global stable coins by the private sector suggests there is still interest in returning to a Bretton Woods style monetary order.

The case for an international currency is as strong today as it was then, but remains difficult to implement.

To explain why, we need to delve into the political economy that has shaped the global monetary order. 

The Bretton Woods system emerged upon the initiative of the US during World War II. 

The idea was to establish a postwar framework of fixed exchange rates to facilitate a resumption of international trade considered critical for a sustained growth in GDP and jobs. 

Under the system all currencies were expressed in terms of the dollar or gold. 

The system was adopted in July 1944 at the United Nations Monetary and Financial Conference at Bretton Woods, New Hampshire, with the establishment of the IMF to ensure any revaluation of exchange rates had its approval.

The system had considerable successes. 

It followed the tradition of the gold standard, which in some variation or other was the international monetary standard from the last quarter of the 19th century (with interruptions during World Wars I and II) until Bretton Woods and can therefore be credited with laying the foundation of economic and financial globalisation.

However, while the fixing of all exchange rates endowed the international economy with a de facto common currency — and facilitated trade as a result — countries soon had to subordinate their domestic economic policies to maintaining the fixed exchange rates and the system showed considerable strains.

In 1965, criticism grew louder that, in particular, the US benefited unfairly as it was able to finance its external deficits with its own currency endowing it with what was described as an “exorbitant privilege”. 

Because the US issued increasing amounts of dollar debt also to finance the war in Vietnam, confidence sagged that it had enough gold to cover it. 

After different attempts to limit the dollar’s gold convertibility, during the early 70s persistent conversions of dollar holdings into gold caused a precipitous decline of US gold reserves. 

On 15 August 1971, the US decided unilaterally to close the “gold window”, ending the Bretton Woods system.

The idea underlying global stable coins is similar to that of fixed exchange rates: it rests on the conversion of national currencies into a third currency or basket of currencies. 

While there are different approaches, the most promising ones involve a floating rate common currency that circulates in parallel to existing national currencies. 

The supply of global stable coins would be a function of national currency tenders and convertibility into national currencies would be on demand at the prevailing exchange rates, respectively. 

Global stable coins need to be able to respond flexibly to positive and negative demand shocks. 

Defining the “optimum” currency or basket is complicated though and no attempt has been made to propose a single global stable coin amid the great variety of economic conditions across countries. 

Nor should it be.

Global stable coins are of course stable only until they are not. 

In the event of a sudden drop in demand, conversion into national currencies should in principle be straightforward as they are not constrained by wider economic policy considerations as typically national currencies would be. 

However, a very prompt move out of a stable coin could significantly reduce liquidity in that coin, precipitating conversion and possibly creating some depreciation pressure if doubts exist about its convertibility. 

Without any credit or liquidity mechanism, stable coins could leave holders stranded. 

For stable coins to serve as effective medium and instil confidence, some support mechanism would probably need to be in place to convey utmost trust in their convertibility.

We’re not about to overhaul the current system right now. 

Yet interest in global stable coins is indicative of a desire to overcome the limitations of national currencies and adopt a medium fit for international exchanges. 

It was a similar rationale that gave rise to the Bretton Woods system too. 

Earlier government-driven attempts like the IMF’s Special Drawing Right and the European Currency Unit have had mixed results. 

If that remains the case, the private sector may fill the gap.


Ousmène Jacques Mandeng is director of advisory boutique Economics Advisory Ltd and a Visiting Fellow at the School of Public Policy of the LSE. He currently works on a number of leading central bank digital currency (CBDC) projects and other blockchain-related payments applications. Here he explains why calls for stable coins hark back to the era defined at the Bretton Woods conference.

Biden's Neo-Populist Economic Doctrine

Within the space of just half a year, US President Joe Biden has completed a necessary economic-policy regime shift that started chaotically under his predecessor. But while the Biden administration has a much better handle on the issues, that doesn't mean the new dispensation will be without risk.

Nouriel Roubini


NEW YORK – About half a year into Joe Biden’s presidency, it is time to consider how his administration’s economic doctrine compares to that of former President Donald Trump and previous Democratic and Republican administrations.

The paradox is that the “Biden doctrine” has more in common with Trump’s policies than with those of Barack Obama’s administration, in which the current president previously served. 

The neo-populist doctrine that emerged under Trump is now taking full form under Biden, marking a sharp break from the neoliberal creed followed by every president from Bill Clinton to Obama.

Trump ran as a populist – commiserating with left-behind white blue-collar workers – but governed more like a plutocrat, cutting corporate taxes and further weakening the power of labor vis-à-vis capital. 

Nonetheless, his agenda did contain some truly populist elements, particularly when compared to the radically pro-Big Business approach that Republicans have pursued for decades.

While the Clinton, George W. Bush, and Obama administrations each differed in their own way, their basic position on key economic-policy questions was the same. 

For example, they all advocated trade-liberalization agreements and favored a strong dollar, seeing that as a way to reduce import prices and support the working classes’ purchasing power in the face of rising income and wealth inequality.

Each of these previous administrations also respected the US Federal Reserve’s independence and supported its commitment to price stability. 

Each pursued a moderate fiscal policy, resorting to stimulus (tax cuts and spending increases) mostly as a response to economic downturns. 

Finally, the Clinton, Bush, and Obama administrations were all relatively cozy with Big Tech, Big Business, and Wall Street. 

Each presided over the deregulation of goods and services sectors, creating the conditions for today’s concentration of oligopolistic power in the corporate, technology, and financial sectors.

Together with trade liberalization and technological advances, these policies boosted corporate profits and reduced labor’s share of total income, thereby exacerbating inequality. 

US consumers benefited from the fact that profit-rich businesses could pass along some of the gains reaped from deregulation (through lower prices and low inflation), but that was about it.

The Clinton, Bush, and Obama economic doctrines were all fundamentally neoliberal, reflecting an implicit belief in trickle-down economics. 

But things started to move in a more neo-populist, nationalist direction with Trump, and these changes have crystallized under Biden.

While Trump was more heavy-handed with his protectionism, Biden nonetheless is pursuing similar nationalist, inward-oriented trade policies. 

He has maintained the Trump administration’s tariffs on China and other countries, and introduced stricter “buy-American” procurement policies, as well as industrial policies to re-shore key manufacturing sectors. 

Equally important, the broader Sino-American decoupling and race for domination in trade, technology, data, information, and the industries of the future has continued.

Similarly, although Biden has not formally followed Trump in demanding a weaker dollar and browbeating the Fed to finance the large budget deficits created by his policies, his administration has also enacted measures that require closer Fed cooperation. 

Indeed, the United States has moved into a de facto, if not de jure, state of permanent debt monetization – a policy that began under Trump and Fed Chair Jerome Powell.

Under this arrangement, if inflation were to rise moderately, the Fed would have to adopt a policy of benign neglect, because the alternative – a tight anti-inflation monetary policy – would trigger a market crash and a severe recession. 

This change in the Fed’s stance represents another sharp break from the 1991-2016 era.

Furthermore, given America’s large twin deficits, the Biden administration has given up on pursuing a strong-dollar policy. 

While it does not favor a weaker greenback as openly as Trump did, it certainly would not mind a currency shift that could restore US competitiveness and reduce the country’s surging trade deficit.  

To reverse income and wealth inequality, Biden favors large direct transfers and lower taxes for workers, the unemployed, the partially employed, and those left behind. 

Again, this is a policy that started under Trump, with the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act and the $900 billion stimulus bill that passed in December 2020. 

Under Biden, the US has passed another $1.9 trillion stimulus package and is now considering $4 trillion of additional spending on infrastructure, broadly defined.

While Biden is pushing for more progressive taxation than Trump did, his administration’s ability to raise taxes is constrained. 

Hence, as under Trump, large fiscal deficits will again be financed mostly with debt that the Fed will be forced to monetize over time. 

Biden also will be channeling a public backlash against Big Business and Big Tech that started under Trump. 

His administration has already taken steps to curb corporate power through antitrust enforcement, regulatory changes, and eventually legislation. 

In each case, the goal is to reapportion some share of national income from capital and profits to labor and wages.

Biden has thus come out of the gate with a neo-populist economic agenda closer to Trump’s than to that of the Obama administration. 

But this doctrinal shift is not surprising. 

Whenever inequality becomes excessive, politicians – of both right and left – become more populist. 

The alternative is to let unchecked inequality become a source of social strife or, in extreme cases, civil war or revolution.

It was inevitable that the US economic-policy pendulum would swing from neoliberal to neo-populist. 

But this shift, while necessary, will bring risks of its own. 

Massive private and public debts mean that the Fed will remain in a debt trap. 

Moreover, the economy will be vulnerable to negative supply shocks from de-globalization, US-China decoupling, societal aging, migration restrictions, the curbing of the corporate sector, cyber-attacks, climate change, and the COVID-19 pandemic.

Loose fiscal and monetary policies may help to increase labor’s share of income for now. 

But, over time, the same factors could trigger higher inflation or even stagflation (if those sharp negative supply shocks emerge). 

If policies to reduce inequality lead to unsustainable increases in private and public debts, the stage could be set for the kind of stagflationary debt crisis I warned about earlier this summer.


Nouriel Roubini, Chairman of Roubini Macro Associates, is a former 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, and was Professor of Economics at New York University's Stern School of Business.