Indo-Pacific Arms Race

The U.S. and China Face Off in the Far East

Chinese warplanes over the Taiwan Strait, nuclear-powered submarines for Australia, hypersonic rockets in North Korea: Military posturing has turned the Far East into a dangerous place.

By Georg Fahrion, Katharina Graça Peters, Alexander Sarovic und Bernhard Zand

A late September airshow in the Chinese city of Zhuhai. Foto: Alex Plavevski / epa


First come the strains of the "Internationale,” and then the roar of the fighter jets. 

Six warplanes circle above the southern Chinese port city of Zhuhai before individual fighters break off from the group. 

One climbs upwards and flips upside down, two others swoop below. 

With the red, yellow and blue smoke shooting out of their tails, they draw fantastic patterns in the sky, the thunder of their engines mixing with the military band and the shouts of onlookers.

On the roof of a building at the edge of the airfield sits a glass enclosure in the baking hot midday sun. 

Inside are two men in uniform talking about the show outside. 

Only Russia and the U.S., they say, possess comparable fighter jets of their own production. 

"It shows the power of a vast country,” one of them says.

It is October 1, China’s National Day. Normally, the Zhuhai Airshow takes place every two years, but because of the pandemic, last year’s show was postponed. 

The spectacle is a powerful demonstration of the achievements of China’s arms industry – the perfect stage for the message that China’s deputy air force commander, Wang Wei, wants to send. 

In Washington, he says, they claim they need to invest more money to "intimidate” China. 

Wang’s response from Zhuhai: "If they aren’t afraid of us, then we’ll meet in the heavens.”

The Zhuhai airfield is right on the coast. Across the runway, there is a view of the South China Sea, part of the Western Pacific, which reaches from Hawaii to Singapore and from Kamchatka to Australia. 

Politicians and military leaders have taken to referring to the region as the Indo-Pacific, which also includes the Indian Ocean.


Indo-Pacific is a geo-strategic term. 

It defines a region that is home to more than half of humanity, that is extremely dynamic economically and through which a huge share of global trade is shipped. 

At the same time, it is a place where the interests of the two superpowers, China and the U.S., collide, along with the competing territorial claims of important regional powers and several unresolved conflicts.

No single country, no military alliance has ever exerted complete control over this entire region. 

The closest anyone has ever come was the Japanese Empire in World War II. 

But after defeating Japan in 1945, the U.S. was able to establish itself as the top power in the region, with lasting consequences: As part of Pax Americana, former war adversaries became allies, dictatorships transformed into democracies and once poverty-stricken nations have grown prosperous – from Japan and South Korea to Taiwan, Malaysia and Singapore. 

Even Vietnam is a U.S. ally these days.

Washington would like to maintain this postwar state of affairs and expand its role as a Pacific power. 

Currently, America’s approach to the region is primarily a military one, with naval patrols and an expanded troop presence. 

But the U.S. is also looking to strengthen political alliances, economic partnerships and technical cooperation.


Beijing, meanwhile, is seeking to change the status quo and keep America at arm’s length. 

On the economic front, China has already found some success, having become the most important trading partner for almost all its neighbors. 

But for at least the last 10 years, Beijing has also been expanding its military influence, by upgrading its navy and air force and transforming islands in the South China Sea – which are also claimed by other countries – into heavily armed outposts.


China’s pressure has encountered resistance. 

In mid-September, Australia, Britain and the U.S. established a new military alliance called AUKUS. 

As part of the deal, Washington and London will supply Canberra with nuclear-powered submarines, marking a meaningful shift in the strategic balance of power in the Indo-Pacific region.

But the AUKUS alliance – which resulted in the cancellation of a conventional submarine deal between France and Australia and raised disapproving eyebrows in Europe – is just one of many military projects in the region. 

Almost all countries that play a strategic role in the Indo-Pacific are investing in their militaries, including North and South Korea, India and Taiwan in addition to China and the U.S. And hard to foresee where the development might lead. 

It could result in the kind of Cold War balance of mutually assured destruction seen in postwar Europe. 

But the arms race in the Indo-Pacific could also drive this economically dynamic and politically fragile region of the world into a military confrontation.

What fears and ambitions are driving developments in this part of the globe? 

What strategic goals are being pursued by the countries involved?

Zhuhai, China

Space probes, rocket launchers, armored cars: The items on display at the Zhuhai exhibition run the full gamut. 

In Hangar 7, a father stands with his son in front of a metal cone that looks like an oversized, charred sugarloaf – the landing capsule of a Chinese spacecraft.

But the exhibition’s highlights are three aircraft that fly a bit closer to the ground. 

The first is the WZ-7 reconnaissance drone, which is similar to an American drone called "Global Hawk.” 

Then there is the PL-15E, an air-to-air rocket that can be fired from fighter jets and travels at four times the speed of sound. 

The hope is that the missile becomes a bestseller abroad – Pakistan has already placed an order. 

Then there is the J-20, a fifth-generation stealth jet presented in Zhuhai for the first time with a Chinese engine instead of a Russian one. 

China’s defense industry, which spent decades simply copying Soviet weaponry, now stands solidly on its own two feet.

As should be expected. 

China is responsible for 60 percent of global growth in defense spending since 1990. 

In the last 10 years, China’s arms expenditures have risen by 76 percent to $252 billion per year. 

Only the U.S. spends – significantly – more, at $778 billion.

Chinese recruits at a naval base in Qingdao Foto: STRINGER/CHINA / REUTERS


Beyond the absolute numbers, U.S. observers are concerned about how Beijing is investing its defense budget. 

With 360 warships, the Chinese navy is already larger than the – qualitatively superior – U.S. fleet.

China’s arsenal of ballistic missiles is also large. 

This summer, satellite images emerged showing fields of hundreds of newly built missile silos. 

China possesses only around 350 nuclear warheads, a fraction of the U.S. and Russian arsenals. 

But the expansion of missile silos could be an indication that China is interested in changing that.


Around half of China’s missiles are of the land-based, intermediate-range variety. 

And in that category, the U.S. is behind, because in contrast to China, Washington was bound until two years ago to the Intermediate-Range Nuclear Forces Treaty signed with Moscow in 1987.

The fact that China has placed an emphasis on intermediate-range missiles is related to the country’s defense doctrine. 

Unlike Washington, Beijing has not thus far seemed interested in projecting its power globally, focusing instead on being able to hold off potential adversaries.

And China’s concerns about a potential attack turned acute a few months ago.

According to U.S. intelligence information, Beijing was concerned that outgoing U.S. President Donald Trump was considering launching a military strike on China. 

Two days after the storming of the U.S. Capitol on Jan. 6, Chairman of the Joint Chiefs of Staff Mark Milley called his Chinese counterpart to reassure him: "I want to assure you that the American government is stable and everything is going to be OK,” he said. 

Last September, Milley confirmed that he did make such a phone call, which was first revealed by former Washington Post reporter Bob Woodward.

Still, the establishment of the AUKUS alliance will do nothing to calm Chinese nerves. 

Beijing-based nuclear weapons expert Zhao Tong says that he believes concerns about the dangers being posed to Chinese naval power have been "exaggerated.” 

Other observers in China, though, fear that Australia’s nuclear-powered submarines could one day prevent Chinese subs from being able to access the Western Pacific through the so-called "first island chain,” stretching between Japan and the Philippines. 

Like the other four nuclear powers and India, China possesses submarines armed with ballistic missiles, and they are a key element in Beijing’s nuclear strike capabilities.

Taipei, Taiwan

The same day that China’s aerial acrobats were showing off their skills in the skies above Zhuhai, a much larger fleet of Chinese warplanes was flying off on a much more serious mission. 

On Oct. 1, 38 jets and bombers penetrated the aerial surveillance zone of an island China’s leaders believe belongs to the People’s Republic, but which is governed – from their perspective – by separatists. 

An island that could ultimately determine whether the developing cold war between the U.S. and China will become a hot one. 

That island is Taiwan.

Chinese pilots flew 10 such missions in 2019. 

There were 380 of them in 2020, and by mid-October of this year, there have been 600 this year. 

Those numbers provide a clear illustration of the tensions currently gripping the Taiwan Strait. 

On Oct. 3, warships from the U.S., Japan, the UK, Canada, the Netherlands and New Zealand carried out naval exercises near Okinawa. 

One day later, Beijing sent out yet more warplanes.

Chinook helicopters flying the Taiwanese flag during final rehearsals ahead of National Day in Taipei. Foto: Ritchie B. Tongo / epa


Of the many conflicts between the U.S. and China, Taiwan is by far the most dangerous. 

Since the 2016 election victory of the Beijing-critical Taiwanese President Tsai Ing-wen, China has been heaping pressure on the democratically governed island nation. 

China has been carrying out military exercises with ever-increasing frequency to intimidate Taipei.

Just a few days ago, Taiwanese Defense Minister Chiu Kuo-cheng told his country’s parliament: "The current situation is really the most dangerous I have seen in my more than 40 years in the military.” 

Taiwanese lawmakers are considering boosting their country’s defense budget by more than $8 billion.

Washington – which, like most countries of the world, does not recognize Taiwan as an independent nation, but which has armed the island for decades – finds itself facing a landmark decision. 

Some U.S. experts argue that the current "strategic ambiguity” be abandoned and Taiwan be offered an official protective alliance. 

Others propose arming the island "to the teeth.” 

Still others say that a war over Taiwan must be avoided at all costs.

In early August, Washington approved the sale of $750 million in howitzers and ammunition to Taiwan. 

In early October, it was revealed that U.S. Special Forces were in Taiwan to train the island’s military. 

The U.S. government is also pushing Taiwan to expand its defense budget and to arm itself against China just as China is arming itself against the U.S. – the so-called "porcupine strategy,” which is designed to make and attack so potentially costly that the opponent decides against it.

Pyeongtaek, South Korea

The route to Camp Humphreys leads past tractors, rice fields and trees beginning to put on their autumn show of colors. 

Only the warplanes thundering overhead – as in Zhuhai and off the coast of Taiwan – disturb the calm of a sunny October morning in the South Korean countryside.

Camp Humphreys lies 65 kilometers (40 miles) south of Seoul and, with 34,700 U.S. troops and civilians, is the largest of all American military bases overseas. 

"We are here to defend South Korea against every opponent and every threat,” says Colonel Lee Peters, who receives his guests at headquarters. 

"Katchi Kapshida,” reads a carpet at the entrance: "We stick together.” 

At Camp Humphreys, the old adage that "if you want peace, prepare for war” is tangible. 

Chinook helicopters take off from the airfield, while missile defense systems, armored planes and tanker trucks can be seen nearby.

Previously, the deterrent posture was primarily intended for North Korea, which continues to develop its nuclear capability and missile program. 

In recent weeks, the country’s leader, Kim Jong Un, has presented a hypersonic missile, a railway-borne missile launcher and a new line of ballistic missiles.

South Korea, too, is arming itself. Seoul is in the process of modernizing its army and developing its own warplanes while also investing in drones and military satellites. 

Some observers believe such activity is only partly meant as a deterrent to North Korea. 

Because, like all countries in the region, South Korea is caught squarely in the tensions between the U.S. and China.

North Korean leader Kim Jong Un visiting an arms show in Pyongyang. The undated photo was first published on Oct. 12, 2021. Foto: KCNA / REUTERS


South Korea, too, is arming itself. 

Seoul is in the process of modernizing its army and developing its own warplanes while also investing in drones and military satellites. 

Some observers believe such activity is only partly meant as a deterrent to North Korea. 

Because, like all countries in the region, South Korea is caught squarely in the tensions between the U.S. and China.

"We Koreans are in the eye of a hurricane,” says S. Paul Choi, head of the StratWays Group, a security consultancy. 

"We yearn for peace. 

We fear reprisals and retaliation.”

The fact that the U.S. has now armed Australia with nuclear-powered subs but has not yet done the same for South Korea has led many in Seoul to wonder where Washington’s priorities currently lie. 

South Korean President Moon Jae-in said during his campaign back in 2017 that his country needed such vessels.

S. Paul Choi forcefully rejects those who have voiced concern about South Korea’s participation in the regional arms race. 

"Understand what is happening here," he says. 

"North Korea is developing an arsenal that is increasingly able to circumvent missile defense and test the U.S. security guarantee. 

China is expanding its arsenal of nuclear and conventional weapons. 

Those who are upset by South Korea reforming its military are ignoring reality.”

There are photographs from the Korean War hanging on the walls of headquarters at Camp Humphreys. 

That conflict ended in 1953 with an armistice, but it has never been formally ended. 

And just four years ago, it almost broke into violence again.

According to reporting from Bob Woodward, U.S. President Donald Trump apparently considered launching a strike against North Korea in 2017. 

A short time later, Trump prepared a tweet in which he intended to announce the withdrawal of family members of U.S. soldiers from South Korea. 

According to Woodward, he only backed off when someone made clear to him that North Korea would see such a step as preparation for war.

The Trump era also taught Europeans that America can no longer be completely relied upon. 

The South Koreans, meanwhile, have learned that war could be but a tweet away.

Honolulu, Hawaii

In May 2018, Washington renamed its Pacific Command, headquartered in the green hills above Honolulu, the Indo-Pacific Command. 

It was a clear indication of the Pentagon’s changing strategic focus: No longer the Atlantic region, but the other side of the globe.

This "pivot to Asia,” which the administration of U.S. President Barack Obama announced 10 years ago, goes far beyond the redeployment warships and troops to the Indo-Pacific. 

It is shifting the focus of U.S. alliance policy, potentially to the detriment of Europe – something that became clear with the establishment of the AUKUS pact and the concurrent snubbing of France.

U.S. troops during a military exercise on the Hawaiian island of Oahu. Foto: U.S. Army / ZUMA PRESS / IMAGO


Since 2007, the U.S. has been meeting with a group of nations – including Australia, Japan and India – that view China’s rise with a fair degree of skepticism. 

For years, the so-called Quadrilateral Security Dialogue, or QUAD, produced little more than pledges of solidarity. 

Recently, though, the group’s intentions have grown more concrete. 

Just days after the announcement of the AUKUS deal, U.S. President Joe Biden invited his partners to Washington. 

Officially, they didn’t mention China by name even once, but their message was clear: The Indo-Pacific, in the words of Australian Prime Minister Scott Morrison, should be "free from coercion, where the sovereign rights of all nations are respected and where disputes are settled peacefully.”

The U.S. seems uncertain what role its European partners could play in the Indo-Pacific. 

Washington welcomes the fact that countries like Britain, France and Germany have sent warships to region. 

But U.S. Defense Secretary Lloyd Austin recently voiced doubts about this approach, saying he wonders if "there are areas that the UK can be more helpful in other parts of the world.” 

Austin seems to be thinking of a kind of division of duties: The U.S. will take care of China and the Indo-Pacific, with the Europeans focusing their attentions on Russia and the Atlantic.

But dividing up the world by such criteria is likely no longer appropriate either. 

In September, Austin’s top software expert Nicolas Chaillan resigned in protest over what he said was the slow pace of digitalization in the U.S. military. 

With China rapidly expanding its abilities in artificial intelligence and cyberwarfare, Chaillan said in an interview with The Financial Times, the U.S. won’t have "a fighting chance against China in 15 to 20 years.” 

It is, he said, "already a done deal. It is already over in my opinion.”

HMAS Stirling, Australia

Garden Island, located near Perth on Australia’s west coast, is covered with white beaches and enjoys plenty of sun. 

Fishing and surfing are allowed during the day, but visitors are prohibited from staying overnight. And a third of the island is off-limits.

The island, after all, is home to the HMAS Stirling military base, the home port of the six, diesel-powered Collins Class submarines of the Australian navy. 

The proud yet aging fleet is now to be replaced, not by the submarines initially ordered from Naval Group, a French company, but by subs produced by the UK and the U.S.

The details of the AUKUS pact are to be worked out in the next year and a half. 

But calling the deal historic is already accurate for several reasons. 

For one, it marks an about-face in U.S. policy. 

For another, it marks a significant strengthening of the Australian navy even as it makes it more dependent on its allies. 

But is also brings with it challenges in the most sensitive area of modern-day defense technology: nuclear weapons.

In contrast to the Collins Class subs and the subs the Australians had originally intended to buy from France, the eight submarines being provided to Australia as part of the AUKUS deal are not diesel powered. They are powered by highly enriched uranium, the same stuff used to build nuclear weapons.

French President Emmanuel Macron and then-Australian Prime Minister Malcolm Turnbull in 2018 onboard an Australian submarine. In September 2021, Canberra cancelled an order for French submarines. Foto: Brendan Esposito / AP


Sébastien Philippe of Princeton University thus believes the submarine deal is a "terrible decision” for nuclear nonproliferation efforts. 

An expert on efforts to control the spread of nuclear weapons and a former adviser to the French Defense Ministry, Philippe isn’t the only one concerned about the AUKUS deal. 

U.S. disarmament expert James Acton has also concluded that the costs of the deal when it comes to controlling the spread of nuclear weapons technology far outweighs its military and strategic benefits.

The benefit of nuclear-powered submarines is that they can remain underwater for much longer and are faster than conventional subs. 

The cost, though, is that AUKUS could mark a precedent for the Indo-Pacific region and beyond.

Australia won’t have its own nuclear weapons but will be in possession of nuclear-powered submarines. 

Philippe says he isn’t concerned that Canberra will use fuel from the submarines to build its own nuclear weapon. 

His concerns have more to do with a provision in international law known as the "submarine loophole.” 

The Treaty on the Non-Proliferation of Nuclear Weapons requires countries that have no nuclear weapons of their own to place all highly enriched uranium under the supervision of the International Atomic Energy Agency (IAEA). But there is an exception for submarines.

The exception has never been used. 

Iran, though, has played with the idea in the past. 

South Korea would also like to have nuclear-powered submarines, and Brazil is in the process of building one. 

The loophole is clearly an attractive one for countries interested in obtaining their own nuclear weapons: such a submarine program could allow a country to take steps toward acquiring the bomb without pesky surveillance from the IAEA.

AUKUS has informed the IAEA of its intention to involve the nuclear inspectors in the coming months. 

But Philippe notes that the UN inspectors have very little experience when it comes to nuclear-powered submarines.

"It is also highly unlikely that the AUKUS partners will grant them sufficient access to this highly sensitive technology,” he says.

As such, he fears a submarine arms race in the region. 

"You can also expect Japan to show interest,” Philippe says. 

"You can also expect India’s and China’s submarine fleet to expand.”

In short, it doesn’t look as though the world has become a safer place in the last several weeks, neither in the Indo-Pacific region nor elsewhere.

Neither above the waves nor below. 

Controllable 

Doug Nolan


Now that was wild. 

Let’s start with the Chinese developers. 

Indicative of the more troubled companies, Kaisa Group bond yields surged to almost 51% in Wednesday trading, up from 36% to begin the week (20% to start the month). 

Yields closed the week at 44.7%. 

After beginning the week at 23.3% (October at 16.6%), Yuzhou Group bond yields surged to almost 38% in Thursday trading, before reversing sharply lower to end Friday’s session at 27.7%. 

China Aoyuan yields began the week at 16.6%, jumped to almost 20% on Thursday, but were back down to 17% by week’s end. 

Evergrande yields ended the week at 75%. 

Acute instability for the bonds of a sector that, according to Nomura, has accumulated a frightening $5 TN of debt.

An index of Chinese dollar developer bonds began the week with yields of 17.5%, up from 14.4% to begin the month and 10% back in July. 

Yields closed Thursday trading at a record 20%, before closing the week at 19.3%.

Ample volatility as well in the cost of insuring against default for the major Chinese banks. 

China Development Bank CDS surged 10 Monday to 77 bps, up from 43 bps points at the beginning of September to the highest level since the pandemic crisis. 

China Development Bank CDS then reversed sharply lower, ending the week down at 62 bps. 

Industrial and Commercial Bank of China CDS traded to 78 bps (high since April ’20), up from 48 on September 17, before closing out the week at 76 bps. 

China Construction Bank traded to a post-pandemic high 75 bps (ended week at 74), after beginning the year at 36 bps. 

It’s been a wild ride for China’s sovereign CDS. 

After beginning October at 47, China CDS closed last week (10/8) at 52.5 bps. 

Prices spiked to above 60 early in the week (high since April ‘20), before reversing lower to close Friday at about 50. 

Indonesia CDS traded to an almost one-year high 96 bps Tuesday, before reversing sharply lower to end the week at 86. 

Malaysia CDS rose to a 15-month high 66 bps on Tuesday, before ending the week at 60 bps. 

India CDS jumped six this week to a six-month high 88.5 bps. Turkish yields surged almost 100 bps to 18.85%.

Global markets in the first half of the week traded with a problematic dynamic of high correlations, rising sovereign yields, widening Credit spreads, increasing CDS prices and sinking stock markets. 

Miraculously, yields, spreads and CDS prices reversed sharply lower, as stocks surged higher. 

Italian yields traded to a five-month high 0.93% in early Thursday trading, only to reverse abruptly with yields down to 0.83% by the afternoon (before closing the week at 0.87%). 

European “crossover” (high-yield) CDS jumped to a seven-month high 277 bps in Tuesday trading, only to reverse lower to end the week at 257 bps. 

After trading down to about 15,000 early Tuesday, Germany’s DAX equities index rallied almost 4% to close the week at 15,587.

The S&P500 rallied 3.3% off Wednesday’s trading lows to end the week with a gain of 1.8%. 

U.S. high-yield CDS prices jumped to a seven-month high 315 bps in Wednesday trading, only to reverse sharply lower to close the week at 300 bps. 

A similar story for investment-grade CDS, with a seven-month high 55 bps reduced to 52 bps by Friday. 

The VIX index traded to about 21 Tuesday, but was back below 16 on Friday. 

Acute Chinese Credit stress and U.S. options expiration week made for a combustible mix. 

And once again, those hedging or attempting to time a market swoon were hammered by an abrupt reversal and rally into expiration. 

Equities again prove unable to adjust to a deteriorating backdrop – in true speculative bubble form.

October 12 – Wall Street Journal (Stella Yifan Xie, Elaine Yu and Anniek Bao): 

“Home sales in China are seizing up as curbs on lending and worries about developers’ financial health deter house buyers, casting a pall over an industry that is central to the Chinese economy. 

In recent days, numerous big developers have reported lower sales figures for September, with many showing year-over-year declines of more than 20% or 30%... 

If sustained, the sharp downturn could have serious economic consequences. 

Real estate has played an outsize role in China’s economy in recent years, compared with its importance in many other countries, and Chinese families have much of their wealth tied up in homes and in investment properties. 

Slower sales could spill over into investment and construction, potentially hurting growth, employment and local government finances. 

Discounting to spur sales could hurt home prices and hit household wealth.”

October 13 – Reuters (Andrew Galbraith and Marc Jones): 

“The rumbling crisis at China Evergrande Group and other major homebuilders drove debt market risk premiums on weaker Chinese firms to a record high on Wednesday and triggered a fresh round of credit rating downgrades… 

The $5 trillion property sector accounts for around a quarter of the Chinese economy by some metrics. 

In the clearest sign yet that global investors' worries are growing, the spread - or risk premium - on investment grade Chinese firms… jumped to its widest in more than two months. 

The spread on the equivalent high-yield or 'junk'-rated index… surged to a new all-time high of 2,337 bps. 

That drove the yield… to an eyewatering 24%. 

‘We see a risk that a disorderly correction in the property market could cause sharp price declines, hitting the personal wealth of homeowners,’ Kim Eng Tan, a credit analyst at S&P Ratings, said… ‘Such an event could also contribute to large-scale losses by investors in wealth management products, and the contractors and service firms that support the developers.’”

October 15 – Bloomberg: 

“China’s central bank broke its silence on the debt crisis at China Evergrande Group, saying risks to the financial system stemming from the developer’s struggles are ‘controllable’ and unlikely to spread. 

Authorities and local governments are resolving the situation based on ‘market-oriented and rule-of-law principles,’ People’s Bank of China official Zou Lan said… The central bank has asked lenders to keep credit to the real estate sector ‘stable and orderly,’ said Zou…” 

Well, risks have been spreading – and rather briskly at that. 

The jury is out on “controllable.” 

With developers discounting apartment units to generate precious liquidity, and millions of nervous apartment buyers fretting significant delays in the completion of their units, it would appear Beijing faces challenges convincing would-be purchasers that apartments remain a risk-free avenue to wealth accumulation.

October 15 – Bloomberg: 

“China’s inflation risks are ‘controllable’ and while rising costs may hurt small businesses, authorities have increased support for those types of firms, central bank officials said. 

Sun Guofeng, head of the monetary policy department, said… producer price inflation will remain elevated in the short term before falling toward the end of the year, though imported inflation and the impact of the global commodity boom is controllable.”

China’s inflation risks are “controllable,” but at this point there’s a bit of a “in theory” caveat. 

At least in the near term, the Chinese economy faces potential multiple shocks - acute energy shortages, factor shutdowns and supply-chain bottlenecks, along with a spike in coal, energy and wholesale prices more generally.

October 13 – Bloomberg: 

“China’s factory-gate prices grew at the fastest pace in almost 26 years in September, potentially adding to global inflation pressure if local businesses start passing on higher costs to consumers. 

The producer price index climbed 10.7% from a year earlier, beating forecasts and reaching the highest since November 1995, as coal prices and other commodity costs soared… 

As the world’s largest exporter, Chinese prices are another risk factor for the global inflation outlook.”

October 13 – Reuters (Colin Qian): 

“China's export growth unexpectedly accelerated in September, as still solid global demand offset some of the pressures on factories from power shortages, supply bottlenecks and a resurgence of domestic COVID-19 cases. 

The world's second-largest economy has staged an impressive rebound from the pandemic but there are signs the recovery is losing steam. 

Resilient exports could provide a buffer against growing headwinds including weakening factory activity, persistently soft consumption and a slowing property sector. 

Outbound shipments in September jumped 28.1% from a year earlier, up from a 25.6% gain in August.”

Could China’s Bubble Economy possibly be more unbalanced? 

The export sector is on fire, with manufacturers struggling to keep up with orders, with supply-chain and transportation bottlenecks significantly pushing out delivery times. 

Meanwhile, the developers are losing access to new finance; apartment transactions have slowed markedly; and everything points to a major leak in China’s historic apartment Bubble.

Inflation is Controllable, so long as Beijing tightens liquidity and Credit growth. 

Risks to the financial system from a collapsing real estate Bubble would be in the near-term Controllable if Beijing floods the system with liquidity and directs the banking system to lend aggressively to the sector (with dire longer-term consequences). 

Of course, Beijing will attempt to thread the needle, ensuring ample liquidity and credit expansion, while employing various measures to dampen inflationary effects. 

The complexity of China’s economic system has grown exponentially over recent years. 

From ensuring local energy supplies to logistics to speculative impulses to household confidence – a control-focused Beijing has never faced such a litany of intricate challenges. 

China’s Aggregate Financing (system Credit) increased $450 billion during September, about 5% below estimates. 

Six-month growth in Aggregate Financing was down 22% compared to 2020, with the y-t-d expansion 16% below last year. 

While slowing markedly, Chinese Credit growth remains formidable – certainly sufficient to fan inflationary fires. 

During the first nine months of 2021, Chinese Credit expanded $3.84 TN. 

Year-over-year growth slowed to 10%, the weakest reading in data back to 2017.

New Bank Loans were reported at $258 billion, about 8% below forecast. 

At $2.60 TN, y-t-d loan growth is at a record pace – running 2.8% ahead of comparable 2020 and almost 23% ahead of 2019. 

But New Loan growth over the past three months was 5% below comparable 2020 (flat with 2019). 

I expected a more pronounced September Credit slowdown, in Household borrowings in particular. 

At $122 billion, Household (chiefly mortgages) Loan growth was the strongest since June (September is a seasonally strong month for lending). 

Boosted by a booming Q1, y-t-d Household Loan growth is running 3% above record 2020 levels. 

Over the past three months, however, growth is 31% below comparable 2020 (8% and 15% below comparable 2019 and 2018). 

Year-over-year growth slowed to 13.2%, down from March’s 16.3%, to the weakest reading since 2009. 

With apartment sales having slowed dramatically over recent weeks, expect much weaker consumer borrowing over the coming months.

Corporate Bank Loan growth remains robust. 

At $153 billion, growth was the strongest since June, and up 4% from September 2020. 

Y-t-d growth of $1.046 TN was 2.5% above comparable 2020 and 40% ahead of comparable 2019. 

Moreover, three-month growth was 18% ahead of Q3 2020. 

Corporate Loans expanded 11.3% over the past year, 25% over two, 39% over three and 67% over five years. 

Elsewhere, Corporate Bond issuance jumped to $67 billion in September, the strongest performance since pandemic crisis April 2020. 

Government Bond issuance was also robust. 

At $152 billion, Government Bond growth was the strongest since September 2020. 

While y-t-d growth is running 34% below comparable 2020, it is 11% above a more “normal” 2019. 

“We have a generation of central bankers who are defining themselves by their wokeness. 

They’re defining themselves by how socially concerned they are. 

They’re defining themselves by how concerned they are about the environment. 

They’re defining themselves by how concerned they are about financial excess and business ethics. 

And they’ve grown up and had their whole experience shaped by a period when inflation was below target. 

And, so, it’s very hard to lose old habits… 

We’re in more danger than we’ve been during my career of losing control of inflation in the US… 

We’ve gone even further towards losing it in Britain and I think we’re at some risk in Europe.” 

Former Treasury Secretary Larry Summers, October 13, 2021.

Yet another noteworthy week in raging commodities markets. 

WTI crude jumped another 3.7% to $82.28, an eighth straight week of gains to a new seven-year high (up 70% y-t-d). 

Gasoline’s 5.1% rise pushed y-t-d gains to 76%. 

Copper surged 10.6%, increasing 2021 gains to 34%. 

Zinc prices rose 20.4%, with Aluminum up 6.9%, lead 5.3%, Nickel 4.2%, and Tin 2.9%. 

The London Metal Exchange benchmark index rose to an all-time high. 

Chinese thermal coal (Zhengzhou Commodity Exchange) prices surged 34% this week. 

Overall, the Bloomberg Commodities Index gained another 2.1%, increasing y-t-d gains to 34.2%. 

Up 5.4% y-o-y in September, consumer price inflation has not been stronger since 2008. 

The 5.9% Social Security cost of living adjustment is the largest since 1982. 

September Producer Prices inflated 8.6% y-o-y. 

Import Prices were up 9.2% y-o-y in September, with Export Prices surging 16.3%.

The five-year Treasury “breakeven inflation rate” jumped seven bps this week to 2.75%, nearing the high since 2005. 

University of Michigan’s consumer survey had One-year Inflation Expectations rising to 4.8%, the high since the 2008 crude-induced inflation spike. 

Ignoring May, June and July 2008, consumer inflation expectations have not been higher since 1982. 

It’s worth noting that 10-year Treasury yields traded up to 4.25% in the summer of 2008, were above 4.6% in November 2005, and at 14% in June 1982.

It’s never good for credibility when a central bank’s inflation view becomes a joke (even within the bank’s own organization!). 

October 12 – Bloomberg (Steve Matthews): 

“Federal Reserve Bank of Atlanta President Raphael Bostic said this year’s inflation surge is lasting longer than policymakers expected, so it’s not appropriate to refer to such price increases as transitory. 

‘Transitory is a dirty word,’ Bostic said… 

He spoke with a glass jar labeled ‘transitory’ at his side, depositing $1 each time he used the ‘swear word,’ as it’s become known to him and his staff over the past few months. 

‘It is becoming increasingly clear that the feature of this episode that has animated price pressures — mainly the intense and widespread supply-chain disruptions — will not be brief,’ Bostic said. 

‘By this definition, then, the forces are not transitory.’”

The Fed has made a mockery of its overarching responsibility for ensuring monetary stability. 

And even the heads of the Wall Street firms have begun prodding the Fed to reduce accommodation, increasingly concerned by the inflationary backdrop. 

October 14 – Bloomberg (Sridhar Natarajan): 

“Morgan Stanley Chief Executive Officer James Gorman is girding for rate hikes, and he says markets are ready for them. 

‘You’ve got to prick this bubble a little bit,’ Gorman said… 

‘Money is a bit too free and available right now.’ 

Gorman pointed to wage increases, supply-chain bottlenecks and surging commodity prices driving inflation higher. 

Not all of that is a temporary phenomenon, forcing the Federal Reserve to move a little more aggressively than policy makers are predicting right now, according to Gorman.”

“Got to prick this Bubble a little bit.” 

“Money is a bit too free…” 

Things have turned so crazy that even Wall Street executives would prefer a little bit of air to come out of the Bubble. 

The world would prefer to see it come out of respective Bubbles. 

China clearly wants to see their Bubbles deflate - a bit. 

But everyone waited much too long to begin withdrawing stimulus. 

Everyone’s “behind the curve” like never before, making it difficult to envisage “a little bit” being germane to anything going forward. 

Policymakers around the globe are coming to the realization that inflation has become a very serious issue, while asset markets are dangerously speculative. 

And it’s not at all apparent that today’s extraordinary predicament – surging inflation and runaway asset Bubbles - is Controllable. 

And if I were a long-term bond, I’m not sure my anxiety would be Controllable. 

No one has even begun to contemplate a return to fiscal sanity. 

Meanwhile, central bankers clearly prioritize market-friendly liquidity abundance, ultra-low interest-rates and loose financial conditions. 

And they are at this point trapped by Acute Bubble Fragility.

Bullish equities pundits are fond of invoking “trillions of cash on the sidelines” as a key factor ensuring the historic equities price inflation will continue uninterrupted. 

But, at the same time, unprecedented cash balances and securities market wealth provide inflationary firepower throughout the real economy. 

The Fed somehow locked itself into a market-pleasing process, where months of elevated inflation have been allowed to take root before so much as commencing a reduction of its monthly $120 billion money-printing operation. 

The Fed is likely nine months away from its first little baby-step rate increase. 

And the way things look today, it would be years before our central bank reaches what would traditionally have been viewed as restrictive policies. 

I specifically see today’s intense inflationary dynamics as Uncontrollable. 

Over the past three decades, the monetary management focus shifted to asset prices. 

Central banks managed rates to ensure ever-rising securities prices, and when they eventually had no further to go with rate cuts resorted to money-printing and liquidity injections directly into the markets. 

Spurred by the pandemic, their reckless monetary inflation and attendant asset Bubbles became Uncontrollable. 

Moreover, inflationary dynamics jumped from the asset markets to engulf commodities, producer and consumer prices. 

Policymakers would like to believe the situation is Controllable; they want to believe the system will return to the way it was. 

But the genie is out of the bottle, and inflationary dynamics will not be conveniently abandoning the real economy and heading back to the comfortable confines of asset prices.

There are major unknowns, of course. 

How long can Beijing hold Bubble collapse at bay? 

How aggressively do the Chinese implement infrastructure investment programs to help offset the deflating real estate sector? 

How cold will the northern hemisphere winter be, and how quickly can supplies of crude, natural gas, and coal be built and transported? 

Will additional weather disasters further complicate global shortages, supply-chain stress and transportation delays?

Maybe the world gets lucky. 

But inflationary risks have not been this elevated for decades. 

Meanwhile, global bond markets are priced for ongoing ultra-loose monetary policies – the policy backdrop required to hold the ugly downside of historic Credit, speculative and economic cycles at bay. 

Considering the unfolding inflationary backdrop, bond yields should be (at least) a couple percentage points higher to approach some semblance of reasonable valuation. 

October 14 – Fox Business (Breck Dumas): 

“Deere & Co. and union representatives for as many as 10,000 of the company's employees represented by the United Auto Workers are on strike as of Thursday… 

The agricultural equipment manufacturer based out of Moline, Illinois, hasn't seen a workers' strike for 35 years. 

But with labor shortages across the country and Deere raking in record profits, workers feel now is the time to hold their ground and ask for more. 

‘The whole nation’s going to be watching us,’ Deere employee Chris Laursen told the newspaper. 

‘If we take a stand here for ourselves, our families, for basic human prosperity, it’s going to make a difference for the whole manufacturing industry. 

Let’s do it. 

Let’s not be intimidated.’” 

Bonds? Why should we bother?

A fabulous run for fixed income is no guide to the future — especially with rates expected to rise and prices fall

Merryn Somerset Webb

US savings bonds featuring US president James Madison © Jitalia17/Getty Images/iStockphoto


For the last 40 years, holding bonds has been a brilliant idea.

As inflation and interest rates have generally fallen, bonds of pretty much every kind have done well (as their prices rise when interest rates fall).

In the US, according to Deutsche Bank, Treasuries have seen positive real returns over the last four decades.

They have also been fabulous at steadying our portfolios. 

Holding only equities since 1970 could have given you several potential heart failures but little more in the way of actual return compared with holding a portfolio of 60 per cent equities and 40 per cent bonds. 

When equities fell in March 2000, and then in 2008-09, bonds did very well, for example.

Can that trend continue? 

It’s hard to imagine. 

My pension documents from Aviva, where I have a large part of my default auto-enrolment scheme invested in bonds, alert me to the fact that “as interest rates rise, bond prices fall . . . this would affect the value of your investment.”

The message? 

It is surely that, if I expect interest rates to rise, I probably shouldn’t hold bonds. 

Let’s think about that. 

Back in 2000, around 80 per cent of the global bond universe yielded more than 5 per cent. 

By the mid-2000s, that was down to more like 60 per cent. 

Now it’s almost none. 

Instead, around 80 per cent of bonds yield between 0 and 3 per cent and 20 per cent have negative yields.

Intellectual apathy is not the only reason why the industry keeps buying bonds. The other is regulatory paralysis

At the same time, inflation is back with a vengeance across the world. 

Central bankers insist it is transient — they reckon that their quantitative easing didn’t push inflation up after the financial crash of 2007 and 2008 and so the current levels of stimulus won’t push it up this time, either.

The rest of us might note that last time around, QE was effectively sterilised by the collapse of bank lending. 

That isn’t the case this time. 

Either way, today’s dynamics rather suggest that rates are more likely to rise than fall, and bond prices to fall than rise. 

And, even if rates don’t rise, unless something dramatic changes in our financial world, they can’t go down much more either.

Flat or falling bond prices might seem unlikely after a 40-year bull market — but they aren’t historically unusual, either. 

Back to the Deutsche Bank data: this shows us that Treasuries haven’t always been an investor’s dream come true: instead, they have shown a negative real return in six of the 12 decades since 1900, including in four successive decades from the 1940s on.

So here’s the question: if bond holdings are (as it seems) significantly more likely to deliver negative rather than positive real returns from here, why on earth are our fund managers holding them for us? 

My Aviva fund, for example, is 60 per cent in equities and 20 per cent in bonds.

Part of the answer is habit. 

Financial market participants are brilliant at extrapolation. 

Every piece of marketing material announces that past performance is not a guide to the future. Every piece also assumes that it is.

So, if a 60/40 split between equities and bonds and other assets has worked brilliantly in the past, most managers will assume it will continue to do so and most corporate systems will continue to operate on the base assumption that a traditional 60/40 portfolio is both balanced and low risk. 

Even if it clearly isn’t.

But intellectual apathy is not the only reason why the industry keeps buying bonds. 

The other is regulatory paralysis. 

A study out this month from Charles Stanley Fiduciary Management showed that around half of the UK’s professional defined benefit (DB) pension fund trustees want to increase their equity risk.

Lovely, you will say, so why don’t they? 

Some 40 per cent say they aren’t madly confident in their investment knowledge so they feel a bit nervous about it. 

But 79 per cent of them gave a second reason: they find the way they are regulated too “stifling”. 

This, says Charles Stanley Fiduciary Management’s Bob Campion, is “the trustee’s paradox.” 

They want to take more equity risk but, largely due to regulatory constraints, “they don’t plan to invest in more equities”.

The truth is, says financial historian Russell Napier, that a variety of funds are effectively “regulated to force them to buy government debt.”

This makes sense in an environment in which deeply indebted governments need to sell a lot of bonds to bring in the cash to cover their endless deficits — and don’t fancy paying higher rates than they do at the moment (our debt may be near its highest levels ever but our debt servicing costs remain near their lowest ever).

And there will be more of this to come. So a reasonable expectation from here would be for real bond returns to be a bit like they were in the decades after the war: negative. 

It would also be reasonable for the answer to the question “why do you buy bonds?” to be “because the regulations said I had to” for the foreseeable future.


Merryn Somerset Webb is editor-in-chief of MoneyWeek. Views are personal. 

How the Global Economy Works, or Seems To

by George Friedman 


There is an interesting pattern that takes place in the global system. 

A nation emerges that is able to produce industrial products at low cost, primarily because of cheap labor and productive innovation. 

This country has a stunning impact on the global system’s economy, and then about 40 years into the cycle the nation’s economy weakens, sometimes catastrophically. 

This is normally because, as an exporting giant, it depends on its customers to buy its wares, and at some point they either can’t or won’t. 

The country goes into a crisis that seems likely to crush it, but in due course it recovers, sometimes economically stronger than ever, and a new country replaces it as the low-cost producer. 

There are not many cases like this, since 40 years is a long time; adding the period of apparent decline seems to complete the cycle in 50 years. That means three such nations would eat up 150 years. 

So I will go with three cases: the United States, Japan and China. (India under the British Raj doesn’t quite fit.)

Let’s being with the United States, the first “China” if you will. 

The Civil War ended in 1865. About a decade later, the United States began its own industrial revolution, which hit its stride in about 1890. 

It was built on producing low-cost manufactured products for consumption by European countries that were focused on the production of higher-value products. 

By 1900, the United States was producing half the manufactured goods in the world. 

American innovation centered on cutting production costs and dominating foreign markets. 

It created massive capital formation in the United 

States and seemed to portend U.S. economic domination of the world. 

What, after all, could stop us?

What stopped us was World War I. 

It wrecked Europe, Washington’s most important buyer, and slowly at first in the 1920s then with increasing speed, it broke the economic system the United States had created. 

The result was the Great Depression and the first American industrial purge. 

Obviously, it did not mean the end of the United States or even its economic preeminence, but it introduced a painful pause and social upheaval. 

It was not Smoot-Hawley tariffs or monetary policy that created the Depression but the destruction of America’s customers. 

The cycle began in earnest about 1890 and ended about 1930 – a period of 40 years – and then recovered during World War II.

Japan is the second case. 

It was decimated in World War II. 

Then around 1950, it began its economic surge. During the Korean War, the U.S. had to import equipment from nearby Japan. 

It needed trucks, and rather than take the time to buy them in the U.S., it asked a small Japanese company if it could make them. 

And so it did. 

The name of the company was Toyota, and it was one of the firms that over time produced cheaper but quite usable cars for the U.S. market, hammering U.S. makers in the process. 

Japan’s educated and disciplined workforce and the collapse of the Japanese economic system reduced labor costs dramatically, allowing Japan to become the low-cost giant of the world by the 1960s.

Japan’s success had a huge effect on the world and particularly on its largest customer, which put massive political pressure on Japan to shift its export policies and increase American imports. 

Japan’s economy was built on cost-effective exports, so that was not an option. 

But more important, the export policy was a government policy, and the banking system was built to support it. 

The banking system invested in these exporting manufacturers to an extreme degree to achieve Japan’s political goals, and at a certain point, the ability of Japanese exports to balance the extreme exposure of Japanese banks failed. 

Japan underwent a massive financial crisis that peaked around 1990 – 40 years after the Japanese boom started. 

Japan spent the next decade or so reorganizing itself into something other than a country that depended on price differentials to fuel its economy. 

It has recovered nicely.

It was replaced by China. 

The death of Mao (and Maoism) opened the door for China to replace Japan as a low-cost, high-volume producer of exported goods. 

Like the U.S. and Japan, it emerged from a system that had been wrecked. 

But it had a fairly disciplined if not sophisticated workforce that could manufacture basic industrial goods and, over time, as with Japan and the United States, increasingly sophisticated products for export. 

Its financial system was heavily based on foreign investment, which had been true of America’s surge, and the inflow of capital made China seem destined to dominate the world (business economists seem to draw too many straight lines). 

As with Japan, China encountered the reluctance of the United States – its main customer – to continue to absorb the social costs of Chinese exports.

A global dislocation from COVID-19 also created dislocations in Chinese exports as the economy’s financial foundations were increasingly vulnerable to relatively small shifts in revenue. 

Over the past few days, the Chinese government has taken steps to stabilize the social and political consequences of a cycle reaching its end. 

China is far from finished, but as with any macro business cycle, and as with the U.S. and Japan, it must pause, regroup and emerge as something different from what it was.

The Chinese surge started circa 1980. 

It now faces the political issue of maintaining stability while it deals with a financial and export crisis. Think of it as China’s Great Depression or Lost Decades. 

Any extended and virtually uninterrupted surge creates massive weaknesses in the economy, which generates social, political and economic crises. 

Every nation handles this differently, but in national economics, the business cycle always lurks. 

For massive exporters, it disrupts the world. 

One consequence is capital flight – internal capital dries up, external capital flees, and a new exporting miracle takes place in a country no one imagines. 

How could the U.S. prosper after the Civil War? 

How could Japan recover after Hiroshima? 

How could China after the Cultural Revolution transform its very soul?

This process seems to be built into modern capitalism. 

There is a hunger for low-price manufactured products by wealthy countries that can no longer afford to produce them. 

Why does the cycle take 40 years? 

I have no explanation. 

It could be coincidence if there were only three cases. 

Or there could be some structural cause. 

But it is there, and it seems to be reaching its terminal stage in China. 

China, of course, isn’t going anywhere, and it will be a permanent economic power after it stabilizes. 

But the breathless blather of its taking over the world will have been proved wrong. 

Another country we never expected will take its place, and then we will claim to have always known it was there. 

Long Hours, Low Pay, Loneliness and a Booming Industry

The ranks of home health aides are expected to grow more than any other job in the next decade. What kind of work are they being asked to do?

By Liz Donovan and Muriel Alarcón

Dany St. Laurent with a photo of her mother, Yvette Dessin, a longtime home health aide who died in April 2020 from Covid-19. Credit...Muriel Alarcón


For 15 years, Yvette Dessin spent long work days with her elderly patients, accompanying them on walks, cooking them meals and bathing those who needed that most intimate kind of care. 

If a patient died, Ms. Dessin and her adult daughter attended the funeral services to pay their respects.

Ms. Dessin worked up to 60 hours a week as a home health aide, her daughter said, making minimum wage. 

She often worried about being able to pay the mortgage on her Queens home. 

She was one of roughly 2.4 million home care workers in the United States — most of them low-income women of color and many of them immigrants — who assist elderly or disabled patients in private residences or group homes.

The industry is in the midst of enormous growth. 

By 2030, 21 percent of the American population will be at the retirement age, up from 15 percent in 2014, and older adults have long been moving away from institutionalized care. 

In a 2018 AARP survey, 76 percent of those ages 50 and older said they preferred to remain in their current residence as they age. 

In 2019, national spending on home health care reached a high of $113.5 billion, a 40 percent increase from 2013, according to the most recent data from the Centers for Medicare and Medicaid Services.

The ranks of home care aides are expected to grow by more than those of any other job in the next decade, according to the Bureau of Labor Statistics. 

It’s also among the lowest paying occupations on the list.

Nearly one in five aides lives below the poverty line. 

In six states, the average hourly wage for home care aides is less than $11, and nationally, the median pay has increased just $1.75 an hour over the last decade, when adjusted for inflation.

Much of the aides’ low wages are paid for with taxpayer dollars — about two-thirds of home care revenue is through public programs, primarily Medicaid, according to the nonprofit PHI, which monitors the eldercare work force. 

The state and the federal government — and sometimes the local municipality — split the cost of Medicaid, which makes for varying rules from state to state, including on what services home health aides can provide.

Yvette Dessin worked up to 60 hours a week as a home health aide, making minimum wage, her daughter said. Credit...The Dessin Family


The pandemic only made things worse, exposing the vulnerability of not only the elderly and infirm but also of those who care for them. 

As Covid-19 spread across the country, many families turned to home health care as an alternative to nursing homes, which had become hot spots for the virus. 

Shortages of personal protective equipment made the work risky.

In conversations with more than 50 home health aides around the country, many workers described unpaid or late-paid wages, unaffordable benefits and chronic injuries. 

In New York City, home health workers qualify for sick leave, but many people interviewed said they were unaware of that or did not feel as though they were truly permitted to take time off. 

Nationwide, accounts from home health aides painted a picture of a rapidly expanding work force that operates under extreme stress and often in isolation, in a lightly regulated field.

For some, like Ms. Dessin, those conditions amid a pandemic proved fatal. 

She was at high-risk because of her age and pre-existing conditions and became one of at least 275 aides at her company who contracted the virus, according to her union. Her company said she was one of seven of its employees to die from Covid-19.

Ms. Dessin’s daughter, Dany St. Laurent, believes that her mother felt trapped during the pandemic.

“Her work came before everything,” she said. 

“Including herself.”

Private work, public regulation

Americare, Ms. Dessin’s employer, is one of about 1,500 home health care providers in New York State, and among the city’s largest, with more than 5,000 employees and about as many patients in the five boroughs and surrounding counties.

The private nature of the work makes oversight of home care agencies challenging, even when regulators try to step in.

In 2018, an investigation by the New York City Department of Consumer and Worker Protection found that Americare was among more than 30 home care agencies that had failed to follow paid sick leave regulations. 

It determined that Americare’s sick time policies violated city law and noted that the company had a “history of noncompliance with labor laws.” 

The company was ordered to change its policies, notify employees of their rights and train managers on complying with city sick leave law.

Dany St. Laurent, Ms. Dessin’s daughter, said her mother felt trapped during the pandemic. “Her work came before everything,” she said. “Including herself.”Credit...Muriel Alarcón


The company is also the subject of a lawsuit by workers claiming a systemic, longstanding underpayment of wages going back to 2005. In court documents, Americare denied the accusations. 

Oral arguments regarding the workers’ motion for the case to proceed as a class action are scheduled to begin later this year.

Americare was investigated twice by the attorney general’s office for Medicaid compliance issues — in 2005 for improper billing and in 2008 for failing to detect workers with falsified training certificates. 

The investigations resulted in a total of $15 million in reimbursements.

In an interview, an Americare representative said that Medicaid audit settlements were common in the industry.

In a written response, Bridget Gallagher, Americare’s vice president, said the company offers 21 days of paid time off and “shared this benefit information with their union.” 

Americare, she added, is dedicated to providing quality home care, citing its high patient care rating from the Centers for Medicare and Medicaid Services. 

Over the past decade, Americare has received an average of $2.4 billion in annual payments from Medicare and Medicaid, according to data obtained through a records request.

There are an estimated 65,000 home care agencies across the country. 

Americare may have a fraught history, but it’s also a microcosm for the industry itself.

It has proved difficult for regulators to monitor such a rapidly growing work force. 

An official with the federal Department of Labor said it was partly a problem of its staffing, given all the industries the agency is charged with overseeing.

“We’ve always understood that our resources will never be enough to take on all the employers that are out there,” he said.

‘Doing what she loved’

When Ms. Dessin moved to New York from Haiti in the mid-1980s, she realized that the unpaid caregiving work she had been doing in her home country was a marketable skill.

Speaking nine months after her mother’s death, Ms. St. Laurent described how life in New York looks from Haiti — “as if money grows on trees,” she told us last winter. 

“From what they’ve seen on the internet, you could just go in the garden and pick up $100.”

For almost two decades, Ms. Dessin ran a day care center out of her apartment. 

In 2005, at 50 years old, she decided to pursue a home health aide certification. 

When she completed the training program that fall, she had her certificate framed.

This lure of education and financial independence also drew Helen Monah, a Guyanese immigrant who moved to New York City in 2018 and began home health care training. 

She texted her daughter, Rubena Durbin, photos of her progress — a stack of open textbooks and pictures of herself in glasses and scrubs. 

In December, she was hired by Americare.

“She was so happy to be working in that environment doing what she loved,” Ms. Durbin said.

The work itself was onerous. 

Apart from regular patient care, Americare home health aides are also required to provide “light housekeeping,” including washing toilets, dusting and removing garbage, according to an employee handbook obtained during the city’s 2018 investigation.

It also puts aides in close contact with their clients. They often have to lift and lower their patients, with their bodies pressed together and faces inches apart.

An executive of Americare acknowledged that in the early pandemic, personal protective equipment was in short supply, so the company gave priority to workers assigned to high-risk patients. 

The executive said that the company distributed information in multiple languages on how workers could protect themselves and that workers were permitted to use paid time off as needed, adding that at one point in April 2020, as many as 250 aides were quarantining.

“Numerous Americare nurses, therapists and aides said they would not be able to work due to their own underlying conditions, family concerns or general anxiety — decisions that we’ve honored and respected,” said Ms. Gallagher, Americare’s vice president.

As of August 2021, at least 275 Americare aides had been infected with Covid-19, according to Francine Streich, a field director at United Food and Commercial Workers Local 2013, the union representing Americare workers. 

She noted, though, that the number is probably an undercount as the company has stopped providing numbers of cases to the union. 

Americare said that number was accurate as of February; it did not provide an updated number.

Helen Monah moved to New York City from Guyana in 2018 and began home health care training. She died in April 2020 as a result of Covid-19. Credit...The Monah Family


According to their daughters, Ms. Monah and Ms. Dessin both felt pressure to take all cases offered to them at the risk of losing their stable schedules. 

If workers decline three shifts in a three-month period, they are put last on the list for another case, according to a union bargaining agreement in place through March 2019. 

It also says, “There is no guaranteed work day, week, year or hours of work.”

“When you tell them ‘no,’” said Ms. St. Laurent, “you are going to pay for that ‘no.’ 

You’re going to feel that ‘no.’”

Life on a ‘live-in shift’

Working overnight makes an already isolating and demanding job even more so. 

Aides assigned to “live-in shifts” spend 24 hours a day at a patient’s home, sometimes for several days in a row. 

The aides are paid for only 13 hours of that time because they are expected to get eight hours of sleep and three hours of meal breaks, according to New York State guidelines and federal regulations.

But the aides interviewed said sleep is contradictory to the job. 

Dementia patients need round-the-clock attention to prevent self-injury, and many patients must be turned every few hours overnight.

Home health aides are classified as “domestic service” workers, many of whom were exempt from a set of labor protections known as the Fair Labor Standards Act until 2015, when the Department of Labor expanded its regulations. 

Since enforcement of those new regulations began, back wages tied to violations of the Fair Labor Standards Act by home health care employers have topped $47 million nationally — at least $4.7 million in New York alone, the third-highest in the country after Virginia ($10.1 million) and Pennsylvania ($6.5 million), according to Department of Labor data.

In New York, labor organizers and legislators are taking aim at the 24-hour shift. 

In March 2019, the New York State Court of Appeals ruled that aides must be paid for all 24 hours of a live-in shift if they do not receive the breaks to which they are legally entitled — but proving it can be complicated, multiple lawyers said. 

It is up to the employer to find an effective method of documenting those hours and compensating the aide for them.

Roger Noyes, then spokesman of the Home Care Association of New York State, of which Americare is a member, said paying for all 24 hours would bankrupt the system without financial support from Medicaid to cover those costs.

The New York State Department of Labor has investigations underway specifically related to underpayments of regular and overtime wages for hours worked for “live-in” shifts, a department official confirmed.

Manhattan Assemblyman Harvey Epstein referred to the 13-hour rule as “government-sanctioned wage theft.”

In January, he introduced a bill that would replace the 24-hour shift with two 12-hour shifts and ban forced overtime. 

It is still sitting in committee.

“I don’t really know why people don’t seem to prioritize this,” Mr. Epstein said, “but I think it is because they’re mostly low-income immigrant women of color, and that’s a forgotten population.”

Working through the pandemic

As the pandemic began spreading through the city, Dany St. Laurent and Rubena Durbin both tried to persuade their mothers to quit. 

But their paychecks helped them achieve the financial independence both women had yearned for most of their lives.

Ms. Dessin spent March 2020 working as many hours as possible — 40 hours a week from Americare and more from another company.

Later that month, she came home from work exhausted.

“Mom, stay home, call out sick,” her daughter, Ms. St. Laurent, pleaded, as Ms. Dessin sat down to catch her breath on the couch.

But Ms. Dessin was only five months away from when she had planned to retire, and decided to keep working.

Yvette Dessin with her grandson Rashawn. Ms. Dessin was one of about 2.4 million home care workers in the United States who assist patients in private residences or group homes.Credit...The Dessin Family


Several days later, her condition had worsened. 

Ms. Dessin struggled to walk and needed her daughter to wash her hair as she sat on a chair in the bathtub. 

She had regularly done this ritual for her elderly clients and had told her daughter she never wanted to be on the receiving end of such intimate assistance.

The next day, Ms. St. Laurent drove her mother to the hospital. 

She was put on a ventilator that same night. 

Four days later, on April 7, Ms. Dessin was gone.

Meanwhile, Ms. Monah had bought a ticket back to Guyana for her son’s wedding, her first visit in four years. 

After this trip, she told her daughter, maybe she’d go on a cruise. 

“Once she got to New York and started making her own money, she wanted to live,” said Ms. Durbin.

Ms. Durbin was concerned when her mother told her that an aide who had worked a shift before her at a patient’s house was coughing, but Ms. Monah assured her daughter that she’d cleaned the area with supplies she bought with her own money.

By April, she, too, had become ill and was treating her flulike symptoms with home remedies and over-the-counter medicines. 

On April 11, she began experiencing acute pain in her legs and stomach.

Rubena Durbin, Ms. Monah’s daughter, on her mother’s job: “She was so happy to be working in that environment doing what she loved.” Credit...Muriel Alarcón


At the hospital, doctors diagnosed a blood clot in her stomach related to Covid-19 and recommended surgery. She sent her daughter a voice note via WhatsApp. 

“I’m going to make it,” she said through fits of raspy coughing. “I’m a fighter.”

But Ms. Monah never woke up, and on April 26 — three weeks after Ms. Dessin’s death — she, too, died.

Back to ‘business as usual’

On July 27, workers and advocates testified before members of three New York State Senate committees during a hearing in Albany and insisted on higher wages and better working conditions.

“We should be able to take care of our own families while providing care for other families,” said Lilieth Clacken, a 61-year-old home health aide and member of the 1199SEIU United Healthcare Workers East union. 

“The work is undervalued and underpaid.”

Ms. Clacken and others are making some headway: In March, state lawmakers introduced New York’s Fair Pay for Home Care Act, which would increase the minimum wage for home care aides, though it has not yet moved to a floor vote.

And last spring, President Joe Biden introduced a $400 billion proposal to increase these workers’ wages and improve overall access to long-term care; the amount of funding is still being negotiated in Congress.

Americare now has a training video on its website showing how to wear personal protective equipment. 

It also encourages workers to get a Covid-19 vaccination at the company’s office.

Ms. St. Laurent wishes her mother had been given more information about the virus. 

“They’re not just old people taking care of old people,” she said. 

“They’re just as important.”

Last fall, the same month that Ms. Dessin had planned to retire, she and Ms. Monah instead were acknowledged together in a makeshift memorial tacked on the wall in Americare’s Brooklyn office. 

In a photo of the memorial posted on the company’s website, seven identical paper posters feature the same stock image of a sunset over water, a company logo, and the name of a worker who died from Covid-19.

The company, the post on its website read, is now back to “business as usual.”


Muriel Alarcón and Liz Donovan reported this story as fellows of the Global Migration Project with Columbia Journalism Investigations at Columbia University. This article is published in partnership with the nonprofit newsroom Type Investigations.