Wrecking Ball 

Doug Nolan


I give it my best shot each week. 

My hope is to provide pertinent insight, though the overarching objective is to scrupulously chronicle this extraordinary period in history. 

Like other great Bubbles and manias, looking back at this era will leave most confounded. 

This week, in particular, I pondered how contemporaneous analysis might decades from now assist readers in comprehending today’s extraordinary dynamics. It was yet another alarmingly fascinating seven days.

February 18 – MarketWatch (Mark DeCambre): 

“That’s Thomas Peterffy, founder and chairman of Interactive Brokers Group Inc., detailing… the dire situation in which the market stood in late January as individual investors on social-media platforms banded together to send a handful of heavily shorted stocks, including bricks-and-mortar videogame retailer GameStop…, with shockwaves registering throughout the market. 

As Peterffy explained…, the so-called short squeeze that played out was rocking clearinghouses and forcing a number of brokerages to attempt to protect themselves by raising margin requirements and capping trading in select stocks to prevent wider-reaching chaos in markets… 

‘So as the price goes higher, the shorts default on the brokers, the brokers now must cover themselves, [and] that puts the price further up, so the brokers default on the clearinghouse, and you end up with a complete mess that is practically impossible to sort out… 

So that’s what almost happened.’”

From CNBC: 

“‘We have come dangerously close to the collapse of the entire system and the public seems to be completely unaware of that, including Congress and the regulators,’ Peterffy said…”

Listening Thursday to the House Financial Services Committee’s “GameStop” hearing, it was clear Washington has little appreciation for the seriousness of structural deficiencies revealed by recent market mayhem. 

The focus was more on blasting predatory Wall Street and the hedge funds, while looking into the cameras to defend the defenseless small investor. 

The broader point of a historic mania and potentially catastrophic infrastructure shortcomings was completely neglected. 

Millions of unusually synchronized buy orders almost led to a cascading market accident. 

It seems rather obvious at this point that existing market infrastructure will buckle under tens of millions of synchronized sell orders.

On the subject of buckling infrastructure, the Texas power grid. 

February 19 – Independent (Louis Hall): 

“The power grid in Texas was ‘seconds and minutes’ away from a catastrophic failure that could have led to months of blackouts, officials with the corporation that operates the grid have said. 

Officials with the Electric Reliability Council of Texas told The Texas Tribune… that the state was dangerously close to the worst-case scenario, forcing grid operators to order transmission companies to quickly reduce power. 

According to the report, operators had to make the quick decision to employ what was intended to be rolling blackouts amid signs that massive amounts of energy supply were dropping off the grid. 

‘It needed to be addressed immediately,’ said Bill Magness, president of ERCOT, told the newspaper. 

‘It was seconds and minutes [from possible failure] given the amount of generation that was coming off the system.’”


As a nation, we were woefully unprepared for the pandemic. 

The drought and summer fires exposed serious deficiencies in California’s power grid. 

Now a deep freeze sees the second largest state suffer a catastrophic power failure – that was apparently close to a complete breakdown that would have required months to repair. 

Millions of Americans (mostly in Texas) suffered through several days of extreme cold without power. 

There was death and serious hardship. Many resorted to sleeping in their cars to stay warm. 

More than 14 million in Texas were Friday either without or under orders to boil tap water. Some locations were facing food scarcity. 

Hours were spent waiting to purchase fuel to power generators. 

Many hospitals were operating without secure energy or water supplies. 

It is what one might expect from a third world country, not the powerhouse U.S. producer of energy products.

February 19 – Bloomberg (Leslie Patton): 

“Restaurants in Texas are throwing out expired food, grocery stores are closing early amid stock shortages and residents are struggling to find basic necessities as a cold blast continues to upend supply chains… 

The situation is so dire in Houston, a major city for dining out, some people have running lists of restaurants that are open and have food supplies… 

The challenges are further limiting residents’ access to food as grocery store shelves remain barren in many areas. 

Supermarket chains such as Kroger Co. have implemented purchase limits on items such as eggs and milk, while HEB Grocery Co. said the weather is causing ‘severe disruption in the food supply chain.’”


Some will blame climate change. 

Others will point to Texas’s fixation on independence and animus toward regulation. 

At this point, some Republican lawmakers must feel cursed. 

Former Texas governor and U.S. Energy Secretary Rick Perry: 

“Texans would be without electricity for longer than three days to keep the federal government out of their business. 

Try not to let whatever the crisis of the day is take your eye off of having a resilient grid that keeps America safe personally, economically, and strategically.”


Reliable energy is a necessity – more now than ever. 

It is a basic utility that must be safeguarded with competence, foresight and intense focus. 

The risks associated with power system failure are so high that reliability even under unusual circumstances can’t be left to chance. 

It cannot be only about low cost. 

Politics and ideology are anathema. 

Clearly, there are serious shortcomings in how Texas’s and our nation’s energy infrastructure are being managed. 

Texas experienced serious cold weather infrastructure issues in 1989 and again in 2011 – and yet the risk of grid failure under extreme cold was largely disregarded. 

The commitment remained to deregulated low-cost energy, avoiding the massive investment necessary to ensure stable energy output and delivery during outlier winter weather episodes.

There is understandable outrage. 

Hearings and reports will be forthcoming – and there will be political ramifications. 

A push toward reregulation would seem inevitable. 

Massive investment to winterize systems will be required. 

And whether it is extreme occurrences in weather, viruses, or market dislocations, we can no longer disregard what were previously dismissed as highly unlikely occurrences. 

Similarly, as a society we need to come to grips with systemic propensities that seem to ensure a lack of planning and preparation. 

The consequences of resource misallocation and structural maladjustment were this week on full display.

Record stock prices. 

Less than two months into 2021, the small cap Russell 2000 has risen 14.8%, with the S&P400 Midcaps up 9.9%. 

The “average stock” Value Line Arithmetic Index has a y-t-d gain of 11.8%. 

The Banks have jumped 16.4% and the Broker/Dealers 16.6%. 

Bitcoin has gained more than 90% so far this year to surpass $53,000.

Record IPO and SPAC issuance runs unabated. 

The historic corporate debt issuance boom continues, certainly including junk bonds. 

Seemingly any leveraged loan or merger/leveraged transaction enjoys the cheapest of financing costs. 

With a proposed $1.9 TN stimulus package, our federal government is poised to post back-to-back $3 TN plus fiscal deficits. 

There is today unlimited finance available for about any zany idea imaginable. 

Indeed, we’re witnessing history’s greatest expansion of non-productive debt. 

I read this week that “Trillions” will be required to update our nation’s decrepit energy infrastructure. 

I appreciate there’s “money” slushing around everywhere - and Trillions more on the way. 

Yet, where will the money come from to modernize the national power grid?

There was reference to the spike in spot Texas electricity prices pushing the cost of recharging a Tesla from about $18 to $900. 

And while the price spike was fleeting, it does raise the broader issue of the disconnect between the push toward electrification and our woefully inadequate energy infrastructure. 

Who, after all, would invest in infrastructure when such incredible opportunities await in thousands of companies sporting breathtaking new technologies – EV and autonomous vehicles, AI, Cloud computing, Robotics, blockchain, cybersecurity, 5/6 G, the “genomic revolution”, Fintech and on and on.

I’ll assume the Texas energy debacle will boost momentum for massive federal infrastructure spending. 

Let’s presume a Trillion dollar spending bill later in the year gets the ball rolling, ensuring another massive federal deficit next year – easily exceeding $2.0 TN. 

Several years of Trillion dollar annual infrastructure spending is not an unreasonable scenario. 

The power grid and energy infrastructure, highways, bridges, tunnels, rail, airports, etc. 

The green new deal. 

So, to answer the above question: our federal government will finance needed infrastructure through ongoing massive debt issuance – at least some of it conveniently monetized by the Federal Reserve. 

Between infrastructure investment and redistribution policies, multi-Trillion fiscal deficits as far as our eyes can see.

Ten-year Treasury yields rose another 14 bps this week to a one-year high 1.35%. 

After trading to a multiyear high 2.25% on Tuesday, the 10-year Treasury inflation “breakeven rate” ended the week at 2.12%. 

The Treasury yield curve (10 vs. 2yr) steepened another 13 bps this week to 123 bps, the widest in four years. 

It’s worth noting the February Input Price component in the IHS Markit U.S. Manufacturing Purchasing Managers’ Index (PMI) survey surged eight points to an almost decade high 73.3. 

Output Prices jumped to the high since 2008. 

The Markit Services PMI Pricing component rose three points to 70.3, the high since October 2009. 

Elsewhere, the Producer Price Index jumped in January a much stronger-than-expected 1.3%, “the biggest gain since December 2009.” 

Notably, prices rose sharply for both Goods and Services indices. 

From CNBC (Diana Olick): 

“The median price of an existing home sold in January was $303,900, a 14.1% increase from January 2020. That is the highest January price that the Realtors have ever recorded.” 

February 17 – Bloomberg (James Politi and Colby Smith): 

“Federal Reserve officials generally believe the threat posed by subdued inflation is greater than the danger of rapidly rising prices, as they begin to factor in the possible effect of President Joe Biden’s $1.9tn fiscal stimulus. 

The US central bank held an extensive discussion of inflationary trends last month in light of a possible acceleration in the economic recovery this year triggered by Biden’s stimulus package, according to minutes from the January meeting of the Federal Open Market Committee. 

‘Participants generally viewed the risks to the outlook for inflation as having become more balanced than was the case over most of 2020, although most still viewed the risks as weighted to the downside,’ the FOMC minutes said.”


Fed officials this week seemed to be lined up to pacify the bond market with the view that heightened inflationary pressures were transitory and a non-issue. 

This should make bonds jittery. 

Traditionally, it was understood that central bank neglect in tamping down fledgling inflationary pressures risked a much more problematic tightening after inflation gained a foothold. 

The Fed is poised to disregard mounting inflation risk. 

It has painted itself into a corner with ill-conceived doctrine invoking above-target inflation to counter a previous period of below-target CPI. 

Indicators of excessively loose monetary policy are everywhere – inflating asset prices, highly speculative securities markets, overheated housing markets, record trade deficits and, now even, heightened producer and consumer price pressures. 

Commodities prices have been surging. 

And this week JPMorgan boosted their forecasts for Q2 growth to 9.5% and the 2021 expansion to 6.4%. 

At this point, the Fed should be in the process of rate normalization. 

Yet, contemplation of that move won’t begin until well after the winding down of QE. 

Amazingly, the Fed is sticking with its monthly $120 billion balance sheet expansion. 

At some point in the future, the Federal Reserve will telegraph its intention to begin some type of taper process. 

It will likely begin a cautious tapering some period following this signal – ensuring many months will pass before this round of QE has run its course. 

It is almost inconceivable that there will not be “taper tantrums” along the way that will further extend the Fed’s irrepressible “money printing” operations. 

The point is the Fed is locked into the loosest and most asymmetric monetary policy imaginable. 

Slash rates to zero and inject Trillions of liquidity in days and weeks, while the return to any semblance of policy normalcy unfolds over quarters and years. 

In a classic “careful what you wish for,” the Fed is going to get the massive fiscal stimulus it has beckoned for. 

And for some time to come, historic monetary and fiscal stimulus will support mounting inflationary pressures. 

I do not recall a period when the domestic environment was as ripe for inflationary pressures to gather momentum.

Importantly, the global backdrop is also highly conducive to upside inflation surprises. 

While generally not comparable to the U.S., nations around the world are running synchronized, dangerously loose monetary and fiscal policies. 

Reckless U.S. inflationism and resulting structural dollar weakness have afforded the entire world the leeway to inflate “money” and Credit. 

The upshot is a pool of dollar balances flooding the world coupled with rapidly inflating quantities of renminbi, euros, yen, pounds, “Aussie”, “kiwi” and “loonie” dollars, won, reals, pesos, rands, and scores of other currencies. 

The world is awash in liquidity and cheap “money” like never before. 

Inflation risk is highly elevated.

Then why are 10-year Treasury yields today at only 1.34%? 

Because the current financial structure is unsustainable. 

U.S. equities and cryptocurrencies are in a historic mania. 

The U.S. corporate Credit boom is an accident in the making. 

Globally, precarious Bubble Dynamics encompass securities markets in about every nook and cranny of global finance. 

The degree of speculation and speculative leverage is unprecedented and unsustainable. 

Meanwhile, mounting inflationary pressures pose a serious risk. 

Yet safe haven bonds, including Treasury, bunds and JGBs, are underpinned by the prospect of faltering global Bubbles and an associated “risk off” contraction of speculative Credit.

Global yields have moved meaningfully higher, and the initial forces of de-risking/deleveraging are emerging at the periphery. 

Local currency 10-year bond yields were this week up 87 bps in Lebanon (49.52%), 46 bps in Mexico (6.04%), 37 bps in Romania (3.13%), 31 bps in South Africa (8.86%), and 19 bps in Indonesia (6.50%). 

Over the past month, yields were up 53 bps in Russia, 35 bps in Slovakia, 34 bps in Brazil, and 26 bps in the Czech Republic. 

While not as dramatic, dollar-denominated EM bonds have also been under pressure. 

This week saw Brazilian 10-year yields jump 16 bps, Mexico 14 bps, Indonesia 21 bps, and Peru 22 bps. 

Outside of EM, periphery European yields have reversed sharply higher. 

Ten-year yields jumped 20 bps this week in Spain, 15 bps in Italy, 15 bps in Portugal, and 14 bps in Greece. 

Bund yields rose 12 bps to negative 0.31%, the high since June 8th. 

Japanese 10-year yields rose four bps this week to 0.11%, the high going back to November 2018. 

February 17 – Reuters (Marc Jones): 

“The COVID pandemic has added $24 trillion to the global debt mountain over the last year a new study has shown, leaving it at a record $281 trillion and the worldwide debt-to-GDP ratio at over 355%. 

The Institute of International Finance’s global debt monitor estimated government support programmes had accounted for half of the rise, while global firms, banks and households added $5.4 trillion, $3.9 trillion and $2.6 trillion respectively. 

It has meant that debt as a ratio of world economic output known as gross domestic product surged by 35 percentage points to over 355% of GDP. 

That upswing is well beyond the rise seen during the global financial crisis, when 2008 and 2009 saw 10 percentage points and 15 percentage points respective debt-to-GDP jumps.”

It's frightening debt growth – with too little to show for. 

And no end in sight. Parabolic expansion of debt of increasingly poor quality. 

“Terminal Phase Excess” on an unprecedented global scale. 

Intensifying Monetary Disorder. 

Manic market Bubble Dynamics – and an ever-widening chasm between inflating asset prices (perceived wealth) and deflating global prospects. 

Record stock prices versus a near catastrophic collapse of Texas’s power grid. 

American society is taking too many blows. 

The Intensifying Drumbeat of a Wrecking Ball. 

If the ramifications of a bursting Bubble are not worrying, you’re not paying attention. 

Tesla and bitcoin: the accounting

Reality just became even more distorted at Elon Musk’s company.

Jamie Powell

© REUTERS

In case you missed it, on Monday green energy pin-up Tesla announced it had spent $1.5bn on bitcoin in January in its 10-K filing.

Plenty of takes, of course, followed. 

Questions raised include whether Elon’s pumping of the coin earlier this year will attract regulatory scrutiny, why a ‘technology’ company would spend more than its entire research and development budget on a Keynesian beauty contest and whether other corporate treasuries will follow suit. (FT Alphaville’s answers to those questions is: no, you’re getting warmer, no.)

One aspect of the funny money purchase that’s been less poured over, however, is what it might mean for Tesla’s results in the future. 

So here’s a quick explainer to tide us over while we wait for the next piece of ridiculous news to drop about the c$800bn-seller of hopes, dreams and electric cars.

First is the question of how Tesla will account for its bitcoin on its balance sheet which, helpfully, the 10-K expanded on. From page 106:

In January 2021, we updated our investment policy to provide us with more flexibility to further diversify and maximise returns on our cash that is not required to maintain adequate operating liquidity. 

As part of the policy, we may invest a portion of such cash in certain specified alternative reserve assets. 

Thereafter, we invested an aggregate $1.50 billion in bitcoin under this policy. 

Moreover, we expect to begin accepting bitcoin as a form of payment for our products in the near future, subject to applicable laws and initially on a limited basis, which we may or may not liquidate upon receipt.

We will account for digital assets as indefinite-lived intangible assets in accordance with ASC 350, Intangibles — Goodwill and Other. 

The digital assets are initially recorded at cost and are subsequently remeasured on the consolidated balance sheet at cost, net of any impairment losses incurred since acquisition. 


As of 31 December 2020, Tesla had $520m of goodwill and intangible assets on its balance sheet, so expect to see that figure at least quadruple by the next set of quarterly results. 

Assuming Tesla doesn’t make an acquisition in the next three months, of course.

One quick observation here — the cryptocurrency’s classification as an intangible asset only adds further weight to the already overwhelming argument that bitcoin is not a currency. 

In fact, Tesla includes US government bonds in its cash and cash equivalents, suggesting sovereign debt is far more of a convertible store of value than the king crypto. 

After all, no one has ever needed to run an impairment test on the dollar, or a Treasury note.

But the crucial question here is, how will it impact Tesla’s bottom line? 

Well, the company answered that also. 

The paragraph quoted above continues:

We will perform an analysis each quarter to identify impairment. 

If the carrying value of the digital asset exceeds the fair value based on the lowest price quoted in the active exchanges during the period, we will recognise an impairment loss equal to the difference in the consolidated statement of operations.

The cost basis of the digital assets will not be adjusted upward for any subsequent increases in their quoted prices on the active exchanges. 

Gains (if any) will not be recorded until realised upon sale.


So, in short, Tesla will not recognise a gain on the value of its bitcoin unless some are sold. 

However, it will recognise a loss if the crypto falls below the price the electric vehicle purchased its allocation over an accounting period, even if the coins are not sold. 

It is not clear from this language, however, which bitcoin exchanges Tesla is referring to, or whether the “lowest price” is an average, or refers to the very lowest price quoted at any one time. 

We’ll just have to wait and see.

What is clear, however, is that unless Tesla sells its bitcoins for a profit, the accounting treatment for its crypto position is skewed to the downside. 

If the crypto is as volatile over the next year as it has been over the past one, its fair to speculate that losses might be greater than expected in at least one quarter this year.

The only certainty here, however, is that it will make Tesla’s GAAP profits, both pre- and post-tax, even further detached from reality than they were before. 

FT Alphaville notes that the company’s bottom line has been heavily distorted by the pure profit zero emission credits it sells to other auto companies, and wild swings in the price of bitcoin are only going to make unpicking the accounting reality from the headline numbers even harder. 

Particularly if the company does realise any gains from selling bitcoin to offset losses from its core business lines. 

A decision that could be taken by the company once it’s clear how a quarter’s numbers are going to pan out.

FT Alphaville isn’t sure what to make of this episode bar the fact its yet another distraction from Tesla’s ongoing struggle to make its core automotive business consistently profitable.

But then again, perhaps that’s the entire point.

Biden Tells Allies ‘America Is Back,’ but Macron and Merkel Push Back

All three leaders seemed to recognize, though, that their first virtual encounter was a moment to celebrate the end of the “America First” era.

By David E. Sanger, Steven Erlanger and Roger Cohen

President Biden delivered remarks to a session of the Munich Security Conference on Friday from the East Room of the White House. Credit...Anna Moneymaker for The New York Times


President Biden used his first public encounter with America’s European allies to describe a new struggle between the West and the forces of autocracy, declaring that “America is back” while acknowledging that the past four years had taken a toll on its power and influence.

His message stressing the importance of reinvigorating alliances and recommitting to defending Europe was predictably well received at a session of the Munich Security Conference that Mr. Biden addressed from the White House.

But there was also pushback, notably from the French president, Emmanuel Macron, who in his address made an impassioned defense of his concept of “strategic autonomy” from the United States, making the case that Europe can no longer be overly dependent on the United States as it focuses more of its attention on Asia, especially China.

And even Chancellor Angela Merkel of Germany, who is leaving office within the year, tempered her praise for Mr. Biden’s decision to cancel plans for a withdrawal of 12,000 American troops from the country with a warning that “our interests will not always converge.” 

It appeared to be a reference to Germany’s ambivalence about confronting China — a major market for its automobiles and other high-end German products — and to the continuing battle with the United States over the construction of the Nord Stream 2 gas pipeline to Russia.

But all three leaders seemed to recognize that their first virtual encounter was a moment to celebrate the end of the era of “America First,” and for Mr. Macron and Ms. Merkel to welcome back Mr. Biden, a politician whom they knew well from his years as a senator and vice president.

And Mr. Biden used the moment to warn about the need for a common strategy in pushing back at an internet-fueled narrative, promoted by both Presidents Vladimir V. Putin of Russia and Xi Jinping of China, that the chaos surrounding the American election was another sign of democratic weakness and decline.

“We must demonstrate that democracies can still deliver for our people in this changed world,” Mr. Biden said, adding, “We have to prove that our model isn’t a relic of history.”

For the president, a regular visitor to the conference even as a private citizen after serving as vice president, the address was something of a homecoming. Given the pandemic, the Munich conference was crunched down to a video meeting of several hours. 

An earlier, brief closed meeting of the Group of 7 allies in which Mr. Biden also participated, hosted this year by Prime Minister Boris Johnson of Britain, was also done by video.

The next in-person summit meeting is still planned for Britain this summer, pandemic permitting.

Mr. Biden never named his predecessor, Donald J. Trump, in his remarks, but framed them around wiping out the traces of Trumpism in the United States’ approach to the world. 

He celebrated its return to the Paris climate agreement, which took effect just before the meeting, and a new initiative, announced Thursday night, to join Britain, France and Germany in engaging Iran diplomatically in an effort to restore the 2015 nuclear agreement that Mr. Trump exited.

Chancellor Angela Merkel of Germany on Friday in Berlin. She warned Mr. Biden that “our interests will not always converge.”Credit...Pool photo by Andreas Gora


But rather than detail an agenda, Mr. Biden tried to recall the first principles that led to the Atlantic alliance and the creation of NATO in 1949, near the beginning of the Cold War.

“Democracy doesn’t happen by accident,” the president said. “We have to defend it. Strengthen it. Renew it.”

In a deliberate contrast to Mr. Trump, who talked about withdrawing from NATO and famously declined on several occasions to acknowledge the United States’ responsibilities under Article V of the alliance’s charter to come to the aid of members under attack, Mr. Biden cast the United States as ready to assume its responsibilities as the linchpin of the alliance.

“We will keep the faith” with the obligation, he said, adding that “an attack on one is an attack on all.”

But he also pressed Europe to think about challenges in a new way — different from the Cold War, even if the two biggest geostrategic adversaries seem familiar.

“We must prepare together for long-term strategic competition with China,” he said, naming “cyberspace, artificial intelligence and biotechnology” as the new territory for competition. And he argued for pushing back against Russia — he called Mr. Putin by his last name, with no title attached — mentioning in particular the need to respond to the SolarWinds attack that was aimed at federal and corporate computer networks.

“Addressing Russian recklessness and hacking into computer networks in the United States and across Europe and the world has become critical to protect collective security,” Mr. Biden said.

The president avoided delving in to the difficult question of how to make Russia pay a price without escalating the confrontation. A senior White House cyberofficial told reporters this week that the scope and depth of the Russian intrusion was still under study, and officials are clearly struggling to come up with options to fulfill Mr. Biden’s commitment to make Mr. Putin pay a price for the attack.

But it was the dynamic with Mr. Macron, who has made a habit of criticizing the NATO alliance as nearing “brain death” and no longer “pertinent” since the disappearance of the Warsaw Pact, that captured attention.

Mr. Macron wants NATO to act as more of a political body, a place where European members have equivalent status to the United States and are less subject to the American tendency to dominate decision making.

A Europe better able to defend itself, and more autonomous, would make NATO “even stronger than before,” Mr. Macron insisted. He said Europe should be “much more in charge of its own security,” increasing its commitments to spending on defense to “rebalance” the trans-Atlantic relationship.

That is not a widely shared view among the many European states that do not want to spend the money required, and the nations of Central and Eastern Europe are unwilling to trust their security to anyone but the United States.

Mr. Macron also urged that the renovation of NATO’S security abilities should involve “a dialogue with Russia.” NATO has always claimed that it is open to better relations with Moscow, but that Russia is not interested, especially as long as international sanctions remain after its seizure of Crimea from Ukraine about seven years ago.

President Emmanuel Macron of France addressed the Munich Security Conference on Friday. Credit...Munich Security Conference


But Mr. Macron, speaking in English to answer a question, also argued that Europe could not count on the United States as much as it had in past decades. “We must take more of the burden of our own protection,” he said.

In practice, it will take many years for Europe to build up a defense arm that would make it more self-reliant. But Mr. Macron is determined to start now, just as he is determined to increase the European Union’s technological capacities so that it can become less dependent on American and Chinese supply chains.

Mr. Biden, in contrast, wants to deepen those supply chains — of both hardware and software — among like-minded Western allies in an effort to lessen Chinese influence. 

He is preparing to propose a new joint project for European and American technology companies in areas like semiconductors and the kinds of software that Russia exploited in the SolarWinds hacking.

It was Ms. Merkel who dwelled on the complexities of dealing with China, given its dual role as competitor and necessary partner for the West.

“In recent years, China has gained global clout, and as trans-Atlantic partners and democracies, we must do something to counter this,” Ms. Merkel said.

“Russia continually entangles European Union members in hybrid conflicts,” she said. “Consequently, it is important that we come up with a trans-Atlantic agenda toward Russia that makes cooperative offers on the one hand, but on the other very clearly names the differences.”

While Mr. Biden announced he would make good on an American promise to donate $4 billion to the campaign to expedite the manufacturing and distribution of coronavirus vaccines around the world — a move approved last year by a Democratic-led House and a Republican led-Senate — there were clear differences in approach during the meeting.

Underscoring the importance that the European Union accords to Africa, Mr. Macron called on Western nations to supply 13 million vaccine doses to African governments “as soon as possible” to protect health workers.

He warned that if the alliance failed to do this, “our African friends will be pressured by their populations, and rightly so, to buy doses from the Chinese, the Russians or directly from laboratories.”

Vaccine donations would reflect “a common will to advance and share the same values,” Mr. Macron said. Otherwise, “the power of the West, of Europeans and Americans, will be only a concept, and not a reality.”

Dr. Tedros Adhanom Ghebreyesus, the director general of the World Health Organization, on Friday also urged countries and drugmakers to help speed up the manufacturing and distribution of vaccines across the globe, warning that the world could be “back at Square 1” if some countries went ahead with their vaccination campaigns and left others behind.

“Vaccine equity is not just the right thing to do, it’s also the smartest to do,” Dr. Tedros said to the Munich conference. 

He argued that the longer it would take to vaccinate populations in every country, the longer the pandemic would remain out of control.


Melissa Eddy, Elian Peltier and Mark Landler contributed reporting.

Token effort

Bitcoin crosses $50,000

But the real action on digital currencies is at central banks


Anyone who bought bitcoin a year ago must feel vindicated—and rich. 

The price of the cryptocurrency crossed $50,000 for the first time on February 16th, a five-fold increase over the past year. 

Wall Street grandees including BlackRock, Bank of New York Mellon and Morgan Stanley are mulling holding some for clients. Last week Tesla, an electric-car maker, said it had bought $1.5bn-worth of bitcoin and would accept it as payment for its cars.

Investors’ interest in bitcoin as an asset may be rising, but the inefficiencies and transaction costs associated with its use make it unlikely ever to be a viable currency. 

Here the action has been within central banks. 

As consumers have shifted away from using physical cash, and private companies—such as Facebook—have expressed an interest in launching their own tokens, many central banks have begun planning to issue their own digital currencies. 

The Bank for International Settlements, a club of central banks, last month said it expects one-fifth of the world’s population will have access to a central-bank digital currency (cbdc) by 2024.

China is the clear frontrunner. On February 17th it concluded the third big test of its digital currency, handing out 10m yuan ($1.5m) to 50,000 shoppers in Beijing. 

It has announced a joint venture with swift, an interbank-messaging system used for cross-border payments. Sweden, another champion, has extended its pilot project.

The latest big central bank to get serious about a cbdc is the European Central Bank (ecb). Its public consultation, seeking views on the desirable features of cbdcs, concluded in January, garnering over 8,000 responses. 

Speaking to The Economist on February 10th, Christine Lagarde, its president, said she planned to seek approval from her colleagues to begin preparing for a digital euro. A decision is expected in April. Ms Lagarde hopes the currency will go live by 2025.

Much like other central banks, the ECB wants to offer consumers digital tender that is as safe as physical cash. 

Unlike bank deposits, a claim on central-bank reserves carries no credit risk. 

Digital-currency transactions could be settled instantly on the central bank’s ledger, rather than using the pipes of card networks and banks. 

That could provide a back-up system in the event that outages or cyber-attacks cause private payment channels to fail.

The bank also sees a digital currency as a potential tool to bolster the international role of the euro, which makes up just 20% of central-bank reserves globally, versus the dollar’s 60%. 

It could let foreigners settle cross-border transactions directly in central-bank money, which would be faster, cheaper and safer than directing them through a web of “correspondent” banks. 

That could make the digital euro attractive to businesses and investors.

Its main draw may be to offer a level of privacy that neither America nor China can promise, says Dave Birch, a fintech expert. The former uses its financial system to enforce sanctions; the latter seeks control. 

But getting the design right will be tricky: the European Union still wants to be able to track cash that is being laundered or hidden to dodge taxes. 

One fix could be to let users open e-wallets only once they have been vetted by banks, but for the use of the digital currency itself to be unmonitored.

A wildly successful digital euro could siphon deposits away from banks and threaten the availability of credit. 

Remedies being considered include capping the amount of currency users can hold or—as Fabio Panetta, a member of the ecb’s executive board, suggested on February 10th—charging penalties on use above a threshold. A digital euro could also involve “huge legal reform”, says Huw van Steenis of UBS, a bank. 

“Settlement finality”—which governs when a payment completes and cannot be reversed—varies across the euro zone’s 19 countries, and would need to be harmonised. 

Launching a cbdc will take more than token efforts.

FROM PITCH FORKS TO TRADING APPS: THE NATIVES ARE GETTING RESTLESS

By Matthew Piepenburg


Mark Twain once quipped that a lie can travel around the world faster than it takes the truth to put its boots on.

But now the truth behind years and years of open lies masquerading as fiscal or monetary policy (as well as the increasingly obvious manipulations and distortions in the paper gold and silver markets) is slowly putting its boots on.

In short, the truth, like a cork, is gradually rising to the surface.

A Market History of Lies Labeled as Policy

Retail investors, for example, are increasingly opening their eyes to the obvious fantasy, as well as rigged game, of central banks printing money out of nowhere to artificially sustain risk asset bubbles which largely benefit a minority class of hitherto “insiders.”

The Bogus Bailout

It was no shocker, for example, that Hank Paulson, the former Goldman CEO turned Treasury Secretary, reacted to the Great Financial Crisis of 2008 by bailing out the very TBTF banks that caused it.

From Temporary QE to Unlimited QE

Nor was it a shocker that Bernanke’s promised “emergency measure” of the “temporary” QE1 of 2009 would not end, as promised, by 2010.

Instead, the temporary became an addiction, as QE 1-4 and Operation twist morphed into now “Unlimited QE” to support broken markets well into 2021 and beyond, thanks to equally desperate Fed successors like Yellen and Powell.

The Bond Lie

The net result of this “accommodation” was artificial buying of a bond market which is now the greatest and most dangerous asset bubble in the history of capital markets.

With greater than 60% of these bonds at the bottom of the credit class, the idea of bonds as a “safe haven” asset is now an open lie.


DC and the Fed—Openly Strange Bed-Fellows

And now, as Yellen makes her move from the Fed to the Treasury, the insider game of putting fancy lads into fancy offices to continue otherwise rotten “accommodation” policies rolls forward.

Of course, the media applauds the now overt irony of the “dollar princes” marriage of the US Treasury and Federal Reserve.

In short, expect far more “accommodation” and currency debasing “stimulus” from DC.

As I’ve said elsewhere, placing Yellen at the treasury makes as much sense as placing Madoff at the SEC.

Wealth Disparity Too Big to Hide From

All these open-secret mechanizations along the DC-Wall Street corridor have been an absolute boon to the top 1%-10% who own (and have enjoyed) well over 80% of the inflated risk asset bubble returns.

The correlation between central bank “stimulus” and S&P inflation, for example, is simply obvious.


And yet, Powell, with a hubris and disingenuity that would make a car salesman or real estate broker blush, continues with his denial that Fed policy has any impact on the middle-class economy.

The wealth disparity which has grown in the last 10+ years has a direct correlation to such insider, rigged and grossly failed, pro-Wall Street bubble policies, resulting in the kind of wealth disparity which can no longer be brushed under the carpet or blamed exclusively on COVID.


Emerging from such lies masquerading as policy is a real economy on its knees and soaked in record breaking debt, while stock and bond markets violate every rational principle of sound valuation.

The Great Inflation Lie

In addition, the fiction writing team at the Bureau of Labor Statistics have been engaged in some fantastic math distortions on everything from unemployment to inflation reporting.

The games they play would require pages not paragraphs to unpack, but suffice it to say here that by tweaking the CPI methodologies behind inflation reporting, the BLS has effectively been able to convince the world that 2+2=1.

By way of simple example, if the BLS were to use the same scale to measure CPI inflation that was used in the more honest era of the 1980’s, then actual inflation today would be closer to 10% (top line) rather than the fictional 2% levels “reported” today (bottom line).


One Too Many Lies Breaks the Back of Trust

But the mad geniuses behind such central bank distortions, as well as the banks, insiders and hedge funds which have front run their “accommodation,” may have taken this game of lies too far…

The “insiders” had always assumed the retail investors (which Wall Street secretly treats as “suckers”—i.e. the “plankton” devoured by the market-savvy “whales”) would somehow not notice the rigged game being played at their expense.

But oh, how things are starting to change.

The conductors behind this rigged orchestra from Basel to DC, or Tokyo to Brussels may know how to rig markets and twist math, but most of them seem embarrassingly ignorant of basic history, regardless of their distorted “expertise.”

That is, they forgot to notice that when wealth disparity (or global feudalism rather than fair market capitalism) gets too obvious, the natives get smart, and then they get restless.

They look for pitchforks.

A New Kind of Pitchfork, A New Angry Mob

Only now, the pitchforks are being replaced by trading apps like Robinhood.

 And the mad crowds are not gathering at la place de Bastille, but rubbing shoulder-to-angry-shoulder on online platforms like Reddit.

A recent crowd of online Game Stop buyers, for example, made headlines short squeezing the hedge funds seeking to profit off yet another retailer death (and Amazon victim) by sending what seemed like an easy short into a record high.

This time, there was hedge fund rather than royal Bourbon blood in the streets.

The same crowd then sought to point those electronic pitch forks at the equally distorted silver market, hoping to bring some form or revenge as well as fair pricing to what is an overtly manipulated (and hence fake) paper market in precious metals.

But even the angriest of crowds can’t defeat, at first, the most powerful of lies and liars…

Hitting a Powerful Wall—The Rigged Paper Pricing of Gold & Silver

The complex and grotesquely manipulated paper market of gold and silver, hitherto misunderstood and ignored by the media bobbleheads and trusting masses, is now making the headlines.

Without getting into the weeds of cash-swaps, BIS immunities, or the Faustian deals which central banks have made with the bullion banks to mask their otherwise undisclosed lack of physical gold and silver, the masses are catching on to what all gold and silver buyers have known for years.

Namely: That paper precious metals are a rigged market.

But rather than make dramatic statements, let’s just do some simple math to let this sink in.

Fake Gold, Fake Pricing

If the global trade in paper gold is greater than $70T a year, yet the annual mine production of gold is just over $200B, do you think there might be a bit of over-looked leverage as well as a massive pricing disconnect between the paper price and the physical value of gold?

Ah… Math and facts, they are stubborn things, no?

Or how about the fact that gold makes up just .5% of global financial investments, yet the trade volume of gold among the LBMA banks in London is greater than the S&P trade volume?

Hmmm.

Weeks ago, moreover, we saw gold tank by $75 dollars in a matter of seconds when a single gold sale of 1.4 million oz into a buyer-less market artificially sent the paper gold price downward, despite no actual movements in the physical market.

Hmmm.

Silver’s Artificial Price Ceiling

Of course, Silver too is no stranger to such blatant yet otherwise headline-ignored price manipulations.

Despite even the most valiant efforts of that rising Reddit mob to correct a pricing wrong, those app-armed crowds didn’t stand much of a chance against the rigged silver market.

Like Pickett’s charge at Gettysburg, they were marching straight into a row of rigged cannons loaded with the cannister shot of bullion bank trading desks—i.e. fatal price manipulators.

With over 100 million oz of silver short contracts outstanding in the futures market, not even an angry mob of silver buyers can fight the manipulated price ceiling in the paper metals market.

For now, that market is simply too big a Goliath for even the most informed (as well as angry) Davids.

One reason Bitcoin is so popular is because its holders feel immune to such price manipulation or big bad banks.

Hmmm.

I wouldn’t be so sure. But that’s a larger topic for another time.

What the Big Banks Fear?

And for those wondering why the central and bullion banks beneath the dark umbrella of that even darker tower at the BIS (the central banks’ central bank) are so concerned with manipulating a downward price (or permanent ceiling upon) upon gold and silver, the motive (as well as means and opportunity) makes perfect sense once you follow the money to their weak spot.

That is, these clever manipulators in their bureaucratic, math-challenged and criminally immune posts in Basel understand one thing very clearly: If gold goes too high in natural price appreciation, the open lie of their failed monetary policies becomes impossible to ignore, hide or even blame on a global flu.

Stated more simply, nothing unmasks the currency-crushing failure of their insane money printing “experiment” better than a rising gold price or honestly reported inflation.

Solution?

Simple: Just rig the paper gold market and tweak the inflation scale.

Or even more simply stated—lie.

That is, manipulate the very basics of supply and demand heralded by Adam Smith behind layers of swap desks and then call the resulting price fraud in gold and silver “policy,” “free markets,” or “natural price discovery.”

Ah, the ironies do abound.

The Natives Are Catching On—and Getting Restless

This dishonest and distorted game, of course, has worked for years.

Largely because it was a reality understood by only a handful of bureaucrats with banking titles and an equally realistic circle of informed commodity traders and COMEX front runners doing the contango on the dance floor of the futures market.

But as growing asset bubbles, tanking Main Streets, and double-speaking, tweet-focused twits otherwise labeled as “experts” get further and further from the plow of reality and honest price discovery, the consequences get too big to hide.

The masses, alas, notice the distortions and begin looking for answers rather than just Fed-speak.

In short, they are armed not only with anger, but insight; not only spray cans and twitter accounts, but trading apps and buy platforms.

Again, the natives are getting restless.

And the Excuses Are Getting Thinner

Of course, nothing worries a corrupt, manipulated and dishonest system more than the truth, and no mob is scarier than an informed one.

How It All Ends

Returning to Mark Twain’s opening quote, even if it takes longer for the truth to get its boots on, one way or another, the truth not only walks, it prevails.

The BIS (or those other excuse-peddlers and euphemism-pitchers at the IMF calling for a New Bretton Woods) can pretend that bond bubbles and negative yielding sovereign IOU’s can all be blamed on a global flu.

But informed investors know that the global financial system (at +$280T in debt) was broke long before the world got sick.

The angry mob is less likely to fall for a new global debt party paid for by a new digital fiat currency as part of what those shameless “leaders” at Davos are calling a “great reset.”

The great reset?

One has to admire the fancy titles experts give to open charades, as well as “solutions” to problems which they alone created.

Owners of physical gold and silver, of course, have known these tricks, as well as failed experiments, for years.

They have patiently been buyers of real money and real stores of value while the rest of the world squawks, distorts and smiles behind clinched jaws and broken promises/policies.

As more investors slowly realize there’s too much risk in an equally bogus bond market paid for by central bank support rather than natural demand, they shall one day collectively ask a simple question, namely:

Am I getting enough yield for the risk?

In a world with over $18 trillion in negative yielding IOU’s the answer is clear enough: NOPE.

Once the selling commences en masse in this broken credit market, there won’t be enough money printers in the world to fill the bid-ask spread or curtail the real inflation and rising rates/yields now bottled up in frothy stocks and bonds paid for by fake currencies.

No “orderly reset” will stem the breakdown of a disorderly (and distorted) system.

Currencies, already debased, will hit the basement of time, and the current tricks used to keep paper gold down won’t prevent physical gold from getting the last laugh, as well natural climb northward.

New-Model Central Banks

Monetary authorities are increasingly expected to address issues such as climate change and inequality, over the objections of those who insist that central banks' narrow mandate is what sustains their operational independence. But ignoring these issues, or saying they're someone else's problem, is no longer an option.

Barry Eichengreen


BERKELEY – We are used to thinking about the remit of central banks as focusing narrowly on price stability, or at most as targeting inflation while ensuring the smooth operation of the payment system. 

But with the global financial crisis of 2008 and now COVID-19, we have seen central banks intervening to support a growing range of markets and activities, using instruments that extend well beyond interest rates and open market operations.

An example is the US Federal Reserve’s Paycheck Protection Program Liquidity Facility, under which the Fed provides liquidity to lenders who extend loans to small businesses in pandemic-related distress. 

This, clearly, is not your mother’s central bank.

Now we hear calls to broaden this ambit still further. European Central Bank President Christine Lagarde and Fed board member Lael Brainard have each urged central banks to tackle climate change. 

Against the backdrop of the Black Lives Matter movement, US Representative Maxine Waters of California has pushed Fed Chair Jerome Powell to do more about inequality, including specifically racial inequality.

Such calls horrify central-banking purists, who warn that charging central banks with these additional responsibilities risks diverting them and their policy instruments from their primary objective of inflation control. 

They caution that monetary policy is a blunt instrument for tackling climate change and inequality, which can be more effectively addressed by taxing carbon emissions or strengthening equal housing laws.

Above all, the critics worry that pursuing these other objectives will jeopardize central banks’ independence. 

Central banks enjoy operational independence in order to pursue a specific mandate, because there is a consensus that the mandated objectives are best taken out of elected officials’ hands. 

But independence does not mean central bankers are unaccountable to politicians and public opinion. 

They must justify their actions and explain how their policy decisions advance the mandated objectives. 

Their success or failure can be judged by whether or not the central bank achieves its independently verifiable targets.

With a greatly expanded mandate, the relationship between policy instruments and targets would become more complex. 

Justifications for policy decisions would be harder to communicate. 

Success or failure would be more difficult to judge. 

Indeed, insofar as monetary policy has only limited influence over climate change or inequality, targeting such variables would be setting up the central bank to fail. 

And frustration over failure might lead politicians to rethink the central bank’s operational independence.

These arguments are not without merit. 

At the same time, central bankers cannot snooze quietly in their bunks in the face of an all-hands-on-deck emergency. 

Calls for central banks to address climate change and inequality reflect an awareness that these problems have risen to the level of existential crises. 

If central bankers ignored them, or said, “These urgent problems are best addressed by someone else,” their response would be seen as a haughty and perilous display of indifference. 

At that point, their independence would truly be at risk.

So, what to do? 

Central banks as regulators have tools with which to address climate change, and their responsibility for ensuring the integrity and stability of the financial system gives policymakers the mandate to use them. 

They can require more extensive climate-related financial disclosures. 

They can impose stricter capital and liquidity requirements on financial institutions whose asset portfolios expose them to climate risk. 

Such tools will discourage the financial system from underwriting brown investments.

The challenge of understanding the risks to financial stability from climate change is that climate events are irregular and nonlinear. 

When modeling them, it will be important for central banks to avoid the mistakes they made in modeling COVID-19. 

Those problems arose because economists and epidemiologists worked in their separate silos. 

So, one might ask advocates like Lagarde and Brainard: How many climate scientists have central banks hired? When will they start?

When it comes to inequality, some central banks already have the relevant mandate. 

In the United States, the Community Reinvestment Act of 1977 tasks regulators, including the Fed, with ensuring that low- and moderate-income families have adequate access to credit. 

The Fed has delegated this responsibility to its 12 regional reserve banks, each of which fulfills it in different ways. 

Stronger guidance from the Federal Reserve Board on exactly how to ensure equal access to credit, with explicit attention to racial disparities, would reinforce existing efforts.

It would be a departure for other central banks, such as the ECB, to address the credit access of minority and underprivileged groups. 

But the European Parliament can so instruct it. And the ECB Board can work with the national institutions that make up the European System of Central Banks in meeting that call.

Monetary policy has implications for issues beyond inflation and payments, including climate change and inequality. 

It would be disingenuous, even dangerous, for central bankers to deny those connections, or to insist that they are someone else’s problem. 

The best way forward for central bankers is to use monetary policy to target inflation, while directing their regulatory powers at other pressing concerns.


Barry Eichengreen is Professor of Economics at the University of California, Berkeley, and a former senior policy adviser at the International Monetary Fund. His latest book is The Populist Temptation: Economic Grievance and Political Reaction in the Modern Era. 

Biden's First Middle East Moves

By: George Friedman


Last week, U.S. President Joe Biden took two steps in the Middle East. 

The first was that he notified Congress of his intention to remove the Houthis fighting in Yemen from the government’s list of foreign terrorist organizations. 

The second was that he said the U.S. would end its support for the Saudi-led campaign in Yemen and would review its relationship with Saudi Arabia over concerns about that country’s human rights record. 

In and of themselves, these two actions have little meaning. Viewed together, they may represent a radical shift in U.S. Middle East policy. 

The question, of course, is how and even whether this shift will affect the reality of the region. 

As I have so often written, policy is the list of things we wish for. 

Geopolitical reality is what we get.

The Houthis are a major faction in what seems the eternal Yemeni civil war. 

They are aligned with Iran, facing off against Saudi Arabia and the United Arab Emirates. 

The war in Yemen has to a great extent morphed from a civil war into a war between other countries’ proxies. 

Both Saudi Arabia and the UAE have been carrying out airstrikes and providing some support on the ground in the fight against the Houthis. 

Iran, on the other hand, has been providing missiles to the Houthis (or Houthi-appearing Iranian forces), which have been fired into Saudi Arabia.


Yemen is a strategic country. 

It can project force into Saudi Arabia and Oman, or allow more powerful allies to do so. 

More important, from Yemen’s location a hypothetical, stronger power could close the Bab el Mandeb strait, and in doing so close the Red Sea. 

Access to the Red Sea is vital: In 1967, Egypt closed the Tiran Straits, blocking Israel from the Red Sea and triggering the Six-Day War.

Yemen is in no position to block the straits itself, but an outside party seeking to sow regional chaos might be. 

And if it did, it could draw Egypt, Israel and Ethiopia into a conflict they don’t want, and threaten Saudi Arabia and Oman, thereby weakening the Arab position in the Persian Gulf.

Iran is not in Yemen for its health. In the short term (which is maybe the only term there will be), Yemen is a base from which Iran can put pressure on Saudi Arabia, which it sees as its major rival, and also on the UAE, the major native Persian Gulf model, to expend resources on an operation that is not in its immediate national security interest but which it can’t avoid. 

In the long run, were the Houthis to win the civil war under Iranian patronage, it could both destabilize the region and persuade some Sunni Arab powers to align with Iran, changing the balance of power in the region at the very least.

The agreement between Israel and the UAE, which is rapidly expanding to other powers – including the Saudis, who are full members without signing the accords for domestic reasons – is an anti-Iran coalition. 

The Sunni Arab states view Iran as their mortal threat, and they see Yemen not only as a test battlefield with Iran but also as a direct assault on core interests, ranging from Syria to Iraq to Yemen itself. 

The Sunni Arab countries’ fear of Iran is not primarily about nuclear weapons. 

They see that as one threat among many – as something that Iran doesn’t have and that, if that changes, will be dealt with by Israel. 

What they fear is Iran’s intrusion in places like Syria and Yemen and the possibility that, in the event of success, these and other countries would turn into Iranian satellites, giving Iran what it really wants, which is the dominant position in the Middle East.

The Trump administration’s position was to treat nuclear weapons in Iran as simply part of a broader threat. 

In other words, with or without nuclear weapons, Iranian covert operations and subversion could give it a dominant position in the area. 

Sanctions were designed to cripple Iran internally, while the Abraham Accords were an attempt to create a powerful coalition, not dependent on U.S. direct intervention, to block Iranian adventures.

The decisions to remove the Houthis from the terrorist list and to review the Saudis’ human rights record are not in themselves significant. But the Biden administration appears to be either gesturing toward a new policy or planning one. 

It has promised to revive the nuclear treaty with Iran. But that was signed in a different Middle East. In today’s Middle East, the solution to the Iranian problem has become indigenous: a massive alliance from the Mediterranean to the Persian Gulf, including a significant nuclear power, Israel, and other powers prepared to challenge Iran, nuclear or not.

The administration is signaling a move toward a hostile relationship with the Saudis over Yemen and human rights. If it follows through on the former, it will also be moving against the UAE, where the U.S. has bases. 

And it will be moving against Israel, which sees the Saudis as a critical foundation of the alliance. Saudi Arabia is less stable than it once was, and the ability of the regime to live up to the new administration’s conception of human rights is limited. 

The threat of an Iran-dominated Yemen is real.

It is difficult to imagine that the Biden administration wants to be forced to deal with an Iran-dominated Yemen or an unstable Saudi Arabia. 

Therefore, it is difficult to imagine that the two recent gestures by the administration are more than just gestures. 

There is, of course, another possibility, which is that Biden somehow believes he can coax Iran into some benign relationship with the Sunni Arabs. 

Doing that by returning to the nuclear treaty as it was originally written might open the door to Iranian interest, but it would panic the rest of the region. 

This is a region where memories go back centuries, and where alliances, like the current anti-Iran one, are based not on affection but on cold calculation.

Iran is in a box, the rest of the region is in an unprecedented alignment, and as many in the administration learned in Libya, things can get much worse. 

From where I sit, the most important thing the U.S. learned is to avoid large-scale military involvement in the Middle East. 

Let Israel, Saudi Arabia, the UAE and the rest handle it, because they have no choice. It is their imperative and constraint. 

The key is to not rock the boat. 

The danger is that all new administrations want to make their mark. 

The good thing about this administration is that it remembers Libya, and its commitment to human rights there. 

The policy might seem virtuous, but the outcome may be far from the intention.

These two gestures are not actions, and it is hard to see where they can lead.