The Great Deflation Of 2022


From the Pento Report:

It is not very surprising to me that nearly every talking head on Wall Street is convinced inflation has now become entrenched as a permanent feature in the U.S. economy. 

This is because most mainstream economists have no clue what is the progenitor of inflation. 

They have been inculcated to believe inflation is the result of a wage-price spiral caused by a low rate of unemployment.

In truth, inflation is all about the destruction of confidence in a fiat currency’s purchasing power. 

And there is no better way to do that than for the government to massively increase the supply of money and place it directly into the hands of its citizenry. 

That is exactly what occurred in the wake of the global COVID-19 pandemic. 

The U.S. government handed out the equivalent of $50,000 to every American family in various forms of loans, grants, stimulus checks, enhanced unemployment, tax rebates, and debt forbearance measures. 

In other words, helicopter money and Modern Monetary Theory (MMT) were deployed—and in a big way. 

The result was the largest increase of inflation in 40 years.

We’ve had some of the highest GDP growth rates in U.S. history over the past few months and the greatest increase in monetary largess since the creation of the Fed. 

But this is mostly all in the rearview mirror now. 

Consumer Price Inflation is all about the handing of money directly to consumers that has been monetized by the Fed. 

It is not so much about low-interest rates and Quantitative Easings—that is more of an inflation phenomenon for Wall Street and the very wealthy.

The idea that Consumer Price Inflation is now a permanent issue is not grounded in science. 

As already mentioned, inflation comes from a rapid and sustained increase in the broad money supply, which causes falling confidence in the purchasing power of a currency. 

At least for now, that function is attenuating.

After all, what exactly is there about a global pandemic that would cause inflation to become a more permanent issue in the U.S. economy? 

In the 11 years leading up to the pandemic, inflation was not a daunting issue—it was contained within the canyons of Wall Street. 

In fact, the Fed was extremely concerned the rate of Consumer Price Inflation was too low. 

And, that the economy was in peril of falling into some kind of deflationary death spiral. 

This is despite ultra-low borrowing costs and money printing from the Fed.

The proof is in the data. The Effective Fed Funds Rate was below one percent from October of 2008 thru June of 2017. 

The Fed was also engaged in QE’s 1,2, & 3 from December 2008 thru October 2014. 

And yet, here are the average 12-month changes in CPI for each of the given years:

2009 = -0.3%

2010 = 1.6%

2011 = 3.2%

2012 = 2.1%

2013 = 1.5%

2014 = 1.6%

2015 = 0.1%

2016 = 1.3%

2017 = 2.1%

2018 = 2.4%

2019 = 1.8%

This means, in the 11 years following the start of the Great Recession, all the way through the start of the Global Pandemic, consumer price inflation was quiescent despite the prevailing conditions of zero interest rates and quantitative easings. 

However, consumer price inflation began to skyrocket by the second quarter of 2021. 

In fact, it has averaged nearly 5% over the past four months. 

What caused the trenchant change? 

It was The 6 trillion dollars’ worth of helicopter money that was dumped on top of consumers’ heads. 

Regular QE just creates asset price inflation for the primary benefit of big banks and Wall Street.

But, the helicopters have now been grounded for consumers and soon will be hitting the tarmac for Wall Street once the Fed’s tapering commences this winter. 

Hence, CPI is about to come crashing down, just as is the growth in the money supply. 

M2 money supply surged by 27% in February 2021 from the year-ago period. 

But, in June of this year, that growth was just 0.8% month over month, or down to just 12% year-on-year.

The Government Lifeline is Being Cut

The highly-followed and well-regarded University of Michigan Consumer Sentiment Index tumbled to 70.2 in its preliminary August reading. 

That is down more than 13% from July’s number of 81.2. 

And below the April 2020 mark of 71.8, which was the lowest data point in the pandemic era. 

According to Richard Curtin, Chief economist for the University of Michigan’s survey, “Over the past half-century, the Sentiment Index has only recorded larger losses in six other surveys, all connected to sudden negative changes in the economy.”

Of course, a part of this miserable reading on consumer confidence has to do with falling real wages. 

But I believe the lion’s share of their dour view is based on the elimination of government forbearance measures on mortgages, along with the termination of helicopter money drops from the government. 

All told, this amounted to $6 trillion worth of bread and circuses handed out to consumers over the past 18 months. 

This massive government lifeline (equal to 25% of GDP) will be pared down to just 2% of GDP in ’22.

Indeed, this function is already showing up in consumer spending. 

Retail sales for the month of July fell 1.1%, worse than the Dow Jones estimate of a 0.3% decline. 

The reduced consumption was a direct result of a lack of new stimulus checks handed out from D.C. Keep in mind that retail sales are reported as s a nominal figure; they are not adjusted for inflation. 

Hence, since nominal retail sales are falling sharply—at least for the month-over-month period–the economy must now be faltering because we know prices have yet to recede, and yet nominal sales are still declining. 

This notion is being backed up by applications to purchase a new home, which are down nearly 20% from last year. 

That doesn’t fit Wall Street’s narrative of a reopening economy that is experiencing strong economic growth and much higher rates of inflation.

On top of all this you can add the following to the deflation and slow-growth condition: Federal pandemic-related stimulus caused a huge spike in the number of Americans that owed no federal income tax. 

According to the Tax Policy Center, 107 million households owed no income taxes in 2020, up from 76 million in 2019. 

So, multiple millions more Americans should now have to resume paying Federal income taxes this year because last year’s tax holiday has now expired.

Oh, and by the way, the erstwhile engine of global economic growth (China) is now blown. 

China’s huge stimulus package in the wake of the Great Recession helped pull the global economy out of its malaise. 

This debt-disabled nation is now unable to repeat that same trick again.

Back to the U.S., the Fed facilitated Washington’s unprecedented largess by printing over $4.1 trillion since the outbreak of COVID-19—doubling the size of its balance sheet in 18 months, from what took 107 years to first accumulate.

But all that is ending now. Next year has the potential to be known as the Great Deflation of 2022. 

This will be engendered by the epiphany that COVID-19 and its mutations have not been vanquished as falsely advertised, the massive $6 trillion fiscal cliff will be in freefall, and the Fed’s tapering of $1.44 trillion per annum of QE down to $0, will be in process.

Then, the economy will be left with a large number of permanently unemployed people and businesses that have permanently closed their doors. 

And, the $7.7 trillion worth of unproductive debt incurred during the five quarters from the start of 2020, until Q1 of this year, which the economy must now lug around.

All this should lead to a stock market that plunges from unprecedentedly high valuations starting next year. 

And, in the end, that is anything but inflationary. 

Indeed, what it should lead to is more like a deflationary depression. 

But the story doesn’t end there. 

Unfortunately, that will cause government to change Modern Monetary Theory from just a theory to a new mandate for the central bank. 

And hence, the inflation-deflation, boom-bust cycle will continue…but with greater intensity. 

The challenge for investors is to be on the correct side of that trade.

Michael Pento is the President and Founder of Pento Portfolio Strategies, produces the weekly podcast called, “The Mid-week Reality Check”  and Author of the book “The Coming Bond Market Collapse.”  


The great American carnival

State fairs reveal the enduring delights of American folk tradition—and the dynamism it has lost

Crystal coronas says she knew this year’s Delaware State Fair was different the instant she let slip her Hollywood Racing Pigs for the first time. 

As Kevin Bacon, Snoop Hoggy Hog and Kim Kardashi-ham careered around the wood-chip track, competing for an Oreo biscuit, Ms Coronas looked up and saw a crowd revelling in post-lockdown delight. 

“People were screaming,” she recalled after another porcine performance. 

“They were so excited to see the show. 

I guess covid’s been hard for everyone.”

Many visitors to Delaware’s 270-acre fairground expressed that sentiment. 

The ten-day carnival was the first organised fun they had had since the pandemic began. 

“It’s just great to be out the house,” was a line Lexington heard often as he and his family sauntered in blistering heat around the carnival’s circus- and farm-animal shows, its funfair and junk-food booths. 

Though Delaware was one of the few states to go ahead with its annual fair last year, it was a covid-diminished affair. 

This year’s carnival, the curtain-raiser to a four-month season of state fairs that will ripple across the country before ending in Louisiana in November, is pretty well business almost as normal. 

Over 300,000 people—representing a third of Delaware’s population—were expected to attend it. 

Upcoming fairs in bigger states, such as Texas, Oklahoma and Minnesota, are predicted to draw 2m, and contribute up to $400m to their local economies.

That is largely down to organisation. 

The fairs grew from a 19th-century tradition of agricultural shows, which had the dual aim of binding communities and educating farmers about technology. 

And even as their budgets have ballooned, most retain that Tocquevillean spirit. 

Delaware’s is organised by a non-profit outfit run by a board of 80 local worthies and many volunteers.

Such eager participation, and the evidence of Lexington’s saunter, also point to the huge demand for these folksy events. 

Outside the jazzy metros, nostalgia is a potent cultural register in America. 

It is manifest in an ageing white population and its taste for retro pop and country music, and pastors and politicians who, like organ-grinders, keep playing the same old tunes. 

The carnivals, which peddle nostalgia for agrarian skills and frolics, are an extreme version of the same.

Visitors to the Delaware show—located outside the unjazzy town of Herrington, at the meeting of the state’s rural and conservative south and its more affluent Democratic north—are greeted by a fairground organ, cranking out 19th-century hits. 

After an opening assault of deep-fried offerings, they head past Ms Coronas’s family menagerie, which also includes camel and pony rides and “the world’s smallest horse”. 

The family’s five generations of circus history are another feature of this rose-tinted show. 

Ms Coronas’s parents were trapeze and high-wire artists before settling in Florida to train race pigs.

The fair-goers—families, older couples and teenage gaggles—then proceed, via more hot and corn dogs, to the show’s towering Ferris wheel. 

Or they could visit the byres where farm youths were fine-tuning their show-ring skills, as their great-grandfathers did before them. 

When a 17-year-old hand told your columnist her family had been in the same spot for four generations, he assumed she was speaking of their farm. 

In fact she was referring to the precise corner of the barn, well-placed for the milking-machine, where she was watching over her Guernsey calf, Dee-Dee.

Most people said they had come for the artery-clogging food. 

Otherwise they cited some aspect of its immemorial traditions. 

For well-heeled visitors from northern Delaware, these represented “Americana”: a playful affirmation of what it was to be American. 

For rural folk such as Bryan, a carpet-fitter, the fair was a link to childhood, a memory of family outings and friendships gone-by; even if, he said glumly, “so much has changed—you don’t see so many people you know.”

There was much to like in this, not least the fact that the carnival is a rare place where America’s two tribes do still mingle. 

Ironically, perhaps, given its historical (and in Iowa continuing) importance as a political soapbox, it has become a reverie on the past that everyone can enjoy. 

Even the sharps operating the fairground games in Delaware seemed wearily benevolent. 

Michael, a paunchy Alabaman running a $5 “shoot-the-hoops” stall, lamented that the punters only rarely listened to his advice on how to beat its almost impossible odds. 

”It’s a carnival game, so of course there’s a trick,” he said mournfully, pocketing another $5. 

It was amusing, heart-warming even; yet very different from the aspirational qualities the state fairs were once known for.

Only after the second world war did they abandon their mission of educating rural Americans about the modern world. 

Most of their visitors no longer worked on the land. 

To the extent that today’s carnivals retain an equivalent purpose it is the reverse: to help suburban Americans know one end of a cow from the other.

State of a fair

Perhaps it is time to renew some of their original modernising purpose. 

The flipside of small-town America’s nostalgia is mistrust of the future. 

That can have unfortunate consequences, and manifestations of the social malaise it can represent were evident at the fairground. 

Consuming quantities of sugary food is another great holiday tradition; but it is all too common in American daily life as well. 

The incidence of obesity is shockingly high in Delaware and has doubled in just 20 years. 

It also seemed that almost no one at the fair was following its guidelines on masking and social distancing—though over a third of Delawarean adults are unvaccinated against covid-19.

America’s nostalgic folk culture is great fun. 

Yet how good it would be, Lexington reflected, as he tried to dissuade his sugar-crazed children from demanding more cash to liberate goldfish, if some of its former dynamism and confidence could be regained.

Unruly response

Xi Jinping’s assault on tech will change China’s trajectory

It is likely to prove self-defeating

Of all china’s achievements in the past two decades, one of the most impressive is the rise of its technology industry. 

Alibaba hosts twice as much e-commerce activity as Amazon does. 

Tencent runs the world’s most popular super-app, with 1.2bn users. 

China’s tech revolution has also helped transform its long-run economic prospects at home, by allowing it to leap beyond manufacturing into new fields such as digital health care and artificial intelligence (ai). 

As well as propelling China’s prosperity, a dazzling tech industry could also be the foundation for a challenge to American supremacy.

That is why President Xi Jinping’s assault on his country’s $4trn tech industry is so startling. 

There have been over 50 regulatory actions against scores of firms for a dizzying array of alleged offences, from antitrust abuses to data violations. 

The threat of government bans and fines has weighed on share prices, costing investors around $1trn.

Mr Xi’s immediate goal may be to humble tycoons and give regulators more sway over unruly digital markets. 

But as we explain, the Communist Party’s deeper ambition is to redesign the industry according to its blueprint. 

China’s autocrats hope this will sharpen their country’s technological edge while boosting competition and benefiting consumers.

Geopolitics may be spurring them on, too. 

Restrictions on access to components made with American technology have persuaded China that it needs to be more self-reliant in critical areas like semiconductors. 

Such “hard tech” may benefit if the crackdown on social media, gaming firms and the like steers talented engineers and programmers its way. 

However the assault is also a giant gamble that may end up doing long-term damage to enterprise and economic growth.

Twenty years ago China hardly seemed on the threshold of a technological miracle. 

Silicon Valley dismissed pioneers such as Alibaba as copycats, until they leapt ahead of it in e-commerce and digital payments. 

Today 73 Chinese digital firms are worth over $10bn. 

Most have Western investors and foreign-educated executives. 

A dynamic venture-capital ecosystem keeps churning out new stars. 

Of China’s 160 “unicorns” (startups worth over $1bn), half are in fields such as ai, big data and robotics.

In contrast to Vladimir Putin’s war on Russia’s oligarchs in the 2000s, China’s crackdown is not about insiders fighting over the spoils. 

Indeed, it echoes concerns that motivate regulators and politicians in the West: that digital markets tend towards monopolies and that tech firms hoard data, abuse suppliers, exploit workers and undermine public morality.

Stronger policing was overdue. 

When China opened up, the party kept a stifling grip on finance, telecoms and energy but allowed tech to let rip. Its digital pioneers used this near absence of regulation to grow astonishingly fast. Didi, which provides transport, has more users than America has people.

However, the big digital platforms also exploited their freedom to trample smaller firms. 

They stop merchants from selling on more than one platform. 

They deny food-delivery drivers and other gig workers basic benefits. 

The party wants to put an end to such misconduct. 

It is an ambition that many investors support.

The question is how? 

China is about to become a policy laboratory in which an unaccountable state wrestles with the world’s biggest firms for control of the 21st century’s essential infrastructure. 

Some data, which the government says is a “factor of production”, like land or labour, may pass into public ownership. 

The state may enforce interoperability between platforms (so that, say, WeChat cannot continue to block rivals). 

Addictive algorithms may be more rigorously policed. 

All this would hurt profits, but might make markets work better.

But make no mistake, the crackdown on China’s unruly tech is also a demonstration of the party’s untrammelled power. 

In the past its priorities often fell victim to vested interests, including corrupt insiders, and it was constrained by its need to court foreign capital and create employment. 

Now the party feels emboldened, issuing new rules at a furious pace and enforcing them with fresh zeal. 

China’s regulatory immaturity is on full display. 

Just 50 or so people staff its main anti-monopoly agency but they can destroy business models at the stroke of a pen. 

Denied due process, companies must grin and bear it.

China’s leaders have spent decades successfully defying Western lectures on liberal economics. 

They may see their clampdown on the technology industry as a refinement of their policy of state capitalism—a blueprint for combining prosperity and control in order to keep China stable and the party in power. 

Indeed, as China’s population starts to decline, the party wants to raise productivity through state direction, including by automating factories and forming urban mega-clusters.

Yet the attempt to reshape Chinese tech could easily go wrong. 

It is likely to raise suspicion abroad, hampering the country’s ambitions to sell services and set global tech standards worldwide in the 21st century, as America did in the 20th. 

Any drag on growth would be felt far beyond China’s borders.

A bigger risk is that the crackdown will dull the entrepreneurial spirit within China. 

As the economy shifts from making things towards services, spontaneous risk-taking, backed by sophisticated capital markets, will become more important. 

Several of China’s leading tech tycoons have pulled back from their companies and public life. 

Wannabes will think twice before trying to emulate them, not least because the crackdown has jacked up the cost of capital.

Startup slowdown

China’s biggest tech firms now trade at an average discount of 26% per dollar of sales relative to American firms. 

Startups, such as the minnows taking ride-hailing business from Didi with mapping apps, have been nibbling at the government’s main targets. 

Far from being emboldened by the crackdown, they are likely to feel exposed. 

Economic development is largely about creative destruction. 

China’s autocratic leaders have shown that they can manage the destruction. 

Whether this tech tumult will also foster creativity remains much in doubt.

Why banks fear central bank digital currencies

Crypto push threatens to diminish the role of traditional lenders

Jonathan Guthrie 

© Financial Times

With the summer Olympics in Tokyo winding down, preparations are stepping up for Winter Olympics in Beijing in February. 

These will ring the starting bell on a much bigger international contest than downhill skiing.

China plans to stake an early territorial claim in the new world of central bank digital currencies. 

It will give foreigners their first real chance to make payments using electronic renminbi issued by the People’s Bank of China.

Any bankers among the visitors may a feel a chill that sub-zero weather cannot be blamed for. 

Central bank digital currencies could disrupt their industry significantly.

New forms of digital currencies promise to be easy and cheap to hold and exchange. 

That gives them potential to rock the power bases of conventional national currencies.

China’s long-running project to develop electronic renminbi is part of a broader challenge to the financial influence of the US. 

It is also a defensive response to the growth of private payment systems in China, notably Alipay.

Developed democracies also fear their own currencies may be partially displaced by zingier crypto alternatives. 

They are mulling the creation of their own CBDCs. Feasibility studies are under way in the European Union, the UK and, even more nebulously, the US.

Why does any of this matter to banks? 

If they can intermediate transactions in pesos and riyals, why not digital currencies? 

Many US banks are already preparing to deal in bitcoin. 

In consensual Europe, banks would probably end up stewarding digital euros as they do conventional cash.

The problem is that theorists typically think central banks would need to become retail deposit takers for their CBDCs to gain critical mass. 

And taking retail deposits has been a core business for bankers in Europe since the Middle Ages.

A deposit account with the European Central Bank or its satellites would look attractive to many Europeans when interest rates were low or financial panic was rife. 

Central banks in developed economies do not collapse with the risk that customer deposits will evaporate. 

In contrast, several commercial lenders were wiped out in the financial crisis, including Northern Rock and Anglo Irish Bank.

Paradoxically, central bank CBDC deposits could worsen financial instability for this reason. 

Suppose that in another meltdown enough terrified depositors switched their funds from the branch of their local bank in the piazza to the safety of the Bank of Italy. 

The local bank would then be in serious trouble. 

Around €11tn of deposits could theoretically be vulnerable across the eurozone, according to a study by Andrea Filtri, co-head of equity research at Mediobanca.

Bigwigs such as Fabio Panetta, a board member of the ECB, have suggested capping the amount of digital euros that customers could deposit with central banks. 

The favoured figure is €3,000, roughly the per capita amount of banknotes in circulation in the eurozone.

Filtri estimates that equates to a maximum reduction of around €1tn in the deposits held by eurozone commercial banks. 

This would hardly leave them lacking of capital to lend. 

They have excess liquidity of some €3.4tn.

Filtri views this capped form of central bank retail deposits as “innocuous” for commercial banks. 

Marion Laboure, a Deutsche Bank strategist, adds: “I would be more concerned by a lack of adoption than too much of it — it takes time to create a habit.”

The customer inertia that favours banking oligopolies is just one obstacle to CBDCs in developed democracies. 

Privacy is another. 

You do not have to be a money launderer to dislike the idea of state bodies being able to see every transaction you engage in. 

This might be possible with blockchain-based CBDCs.

The issue is jokingly illustrated by one expert with the “cheeseburger transaction declined scenario”. 

Here, government busybodies “switch off” electronic money an overweight citizen wants to spend on an unhealthy snack.

None of these snags with CBDCs get commercial banks entirely off the hook. 

The ECB is still contemplating the nationalisation of part of their deposit-taking business. 

This comes at a time when interlopers are busy trying to prise other lines of business away from traditional lenders. 

Remittances are just an example.

The business model of most commercial banks bundles multiple services together to create economies of scale. 

CBDCs figure as one of the innovations threatening to pick that business model apart.

Terror Expert on Afghanistan

"The Real Threat Is Islamic State, Not Al-Qaida"

The attack at the Kabul airport shows that the Taliban are unable to get the country completely under control, terror expert Wassim Nasr argues in an interview. An entity that once offered safe haven to terrorists will now have to fight them.

Interview Conducted by Britta Sandberg

A person wounded in the bomb blast at the international airport in Kabul Foto: Victor J. Blue / The New York Times / laif

DER SPIEGEL: Mr. Nasr, what many have been fearing in recent days has come to pass: On Thursday, an attack at the Kabul airport claimed the lives of at least 80 civilians and 13 American soldiers.

Nasr: From a very early stage, there was much to suggest that this attack originated with the Afghan branch of the Islamic State (IS), which has since claimed responsibility for it. 

They were IS suicide bombers.

DER SPIEGEL: Why were you so certain early on that it was IS?

Nasr: It is the only group that has an interest in an attack like this, because by doing so, the IS fighters are showing that the Taliban are unable to take control of the city they have captured. 

And they are distancing themselves from the Taliban, which for days has tolerated Afghans being taken out of the country on planes. 

Many consider this to be a betrayal, not only the supporters of IS.

DER SPIEGEL: What does this mean for the new Taliban government?

Nasr: Thursday’s attacks have put them in an extremely difficult situation. Attacking the Americans in the last days of their withdrawal was not in the Taliban’s interest. 

They had defeated the world’s greatest military power – why would they attack the Americans and risk everything they had achieved? 

But now they have to respond – that is, strictly speaking, they now have to fight the war on terror, but on their own, without the support and technical equipment of the U.S. Army. 

That is going to be complicated no matter how you look at it.

DER SPIEGEL: Because the Taliban aren’t capable of doing so?

Nasr: IS has long been an opponent of the Taliban. It was the Islamic State that most recently carried out the major, deadly attacks in Kabul. 

It is the real threat, not al-Qaida. 

The Americans took massive action against IS fighters in the country. 

But will they continue to do so – with armed drones or cruise missiles? 

No one can say at this point. 

For now, the Taliban are on their own, and no one knows if their fighters can do the job. 

But there's also another problem: If the Taliban now carry out anti-terrorist operations, this could divide the country into two camps. 

All those who no longer feel represented by their new government could then radicalize further and possibly join IS.

DER SPIEGEL: What distinguishes today's Taliban from those who ruled Afghanistan from 1996 to 2001?

Nasr: Not much. 

We should stop pretending once and for all that we are dealing with a new generation of Taliban. 

The new head of their political office, Mullah Abdul Ghani Baradar, spent eight years in prison in Pakistan. 

He was a close friend of the former Taliban leader Mullah Omar. 

The group’s new No. 2, Sirajuddin Haqqani, belongs to the militant Haqqani network, which has close ties to al-Qaida. 

And the recently appointed governor of Khost, Mohammad Nabi Omari, spent 12 years in Guantanamo and was only released thanks to a trade that was made for a U.S. hostage. 

These are still the same people and the ideology has remained the same. 

But they are now acting more politically, more strategically adept. 

They have learned.

DER SPIEGEL: After the 9/11 attacks, the Haqqani network helped hide the leadership of al-Qaida in Waziristan in Pakistan. 

Is Afghanistan now likely to become a haven for al-Qaida fighters once again?

Nasr: They have been in the country for a long time, anyway. 

But will the Taliban allow them to plan attacks on Europe and the U.S. from Afghanistan? 

I don’t think so. 

If only for the simple reason that the 9/11 attacks thwarted all the Taliban’s plans.

DER SPIEGEL: What do you mean by that?

Nasr: The Taliban government wanted to be politically recognized. 

It received UN delegations and representatives of other states. 

Al-Qaida wrecked all those plans. 

Incidentally, even back then, the Sept. 11 attacks were largely planned and prepared in Hamburg and the U.S., even though Osama bin Laden had made the country his place of residence. 

Either way, al-Qaida is logistically incapable of a terrorist attack like 9/11 today. 

The group is far too weakened.

DER SPIEGEL: That could change given that al-Qaida can now operate in the country unhindered by American surveillance.

Osama bin Laden in Afghanistan: "The Sept. 11 attacks were largely planned and prepared in Hamburg and the U.S." Foto: CNN / Getty Images

Nasr: That’s right, they will no longer be under constant observation by the U.S. 

Will this situation lead to the strengthening of the organization again? 

Definitely, yes. 

But there won’t be any more training camps for "foreign fighters" from Europe like the ones before 2001 – that is a model from the past. 

We have seen that terrorists in Europe can carry out attacks even without training. 

I believe the new government can keep al-Qaida in check.

DER SPIEGEL: That means al-Qaida won't likely be a threat, but IS will be even more dangerous?

Nasr: Both terrorist groups will strengthen their own ranks after the Americans withdraw. 

But the crucial point is this: We don’t yet know what course the new Taliban government will take. 

Will it leave women in certain positions? 

Will girls still be able to go to school? 

Will it allow the Shia in the country to practice their faith? 

Nobody knows yet how they are going to act. 

The whole world is watching – the West, but also the Afghans. 

If this new course isn’t to their liking, it will attract new fighters, particularly to the IS, and it could lead to internal conflicts, fighting and attacks in the country. 

Wassim Nasr is a terrorism expert and journalist for the news channel France 24. In 2016, a book he wrote about the Islamic State was released by the French publisher Plon. He lives in Paris.

How Will the U.S. Pay for the $3.5 Trillion? Taxes, Mostly.

By Janet H. Cho

The Senate passed a $1 trillion infrastructure bill Tuesday, the first part of President Biden's ambitious economic plan./ Mandel Ngan/AFP via Getty Images

Now that the Senate has passed the $1 trillion infrastructure bill, the upper chamber now turns its attention to the second half of President Joe Biden’s economic agenda: a 10-year, $3.5 trillion budget resolution to invest in what the president calls “human infrastructure.” 

How to pay for all this new spending will be the focus of debate in the coming months.

The budget resolution aims to fight poverty and inequity, invest in programs for children and seniors, and fight climate change—paid for by the largest corporations, the wealthiest Americans, and other revenue sources.

It proposes investing in universal prekindergarten and child-care programs, extending the child tax credits, providing two free years of community college, creating paid family and medical leave, expanding Medicare benefits to cover dental, hearing, and vision, lowering the Medicare-eligibility age, offering green-energy tax incentives, starting a Civilian Climate Corps, and buying more low-emission government vehicles.

Introduced on Monday, the Senate voted Tuesday on the outlines of the $3.5 trillion package, with details to be filled in over the coming weeks and months. 

The Senate is set to leave for its August recess after the vote and resume debate on the broader initiatives when it returns to Washington in mid-September.

Senate Budget Committee Chairman Bernie Sanders (I., Vt.) called it a long-overdue investment in the working class, and “the most consequential piece of legislation for working people, the elderly, the children, the sick and the poor since FDR and the New Deal of the 1930s.”

Republicans who had supported the $1 trillion bipartisan infrastructure bill were critical of the partisan $3.5 trillion proposal. 

“They’ve set out trying to tax and spend our country into oblivion,” Senate Minority Leader Mitch McConnell, (R., Ky.) said. Sen. Cynthia Lummis (R., Wyo.) called it “a progressive grab bag of policies that you’ll pay for with your hard-earned dollars either through more inflation now or higher taxes later.”

Democrats say they will pay for the second phase of Biden’s infrastructure plan with taxes on the wealthy and corporations, uncollected taxes, and other measures.

Senate Finance Committee Chairman Ron Wyden (D., Ore.) said they will offer lawmakers a menu of options including proposals for “multi-national corporations, the wealthiest individuals, enforcement against wealthy tax cheats, and savings from other programs.”

Democrats have proposed increasing tax rates on corporations to 28% from the current 21%. 

The rate had been 35% before Republicans cut it in 2017. 

Senate Republicans had refused to consider restoring tax increases during negotiations over the first part of the infrastructure package, a $1 trillion bill that passed Tuesday.

Democrats have also called for raising the top tax bracket for the wealthiest individuals to 39.6%, the level it had been before the Republican tax cut. 

In addition, Biden has proposed raising the capital-gains tax rate to 39.6% from the current 20%. 

Increasing the capital-gains tax could raise $370 billion over 10 years, the nonpartisan Urban-Brookings Tax Policy Center has estimated. 

Biden and Democrats also want to expand the Internal Revenue Service’s capacity to pursue tax cheats. 

One IRS watchdog group has estimated that wealthy tax dodgers owe more than $2.4 billion in unpaid taxes. 

That, too, was cut from the infrastructure bill after some Republicans objected. 

Democrats have asked the Senate Finance Committee to find additional revenue from healthcare savings, and a new fee on carbon and methane polluters, including taxing on imports from countries with weak climate change policies.

In addition, Sen. Elizabeth Warren (D., Mass.) and Sen. Angus King (I., Maine) have proposed taxing corporations 7% on profits reported to investors of more than $100 million, which they estimate would raise $700 billion over 10 years from an estimated 1,300 companies. 

While Biden and other Senate leaders agree on the proposals, it is not certain that all 50 Democrat-leaning senators support what is now in the mix. 

In the coming weeks and months, expect to hear different takes on what the best and final plan should be.