Jobs for the comrades

Pedro Castillo, Peru’s new president, tries to seem less left-wing

Investors are not entirely convinced


When he took office as Peru’s president on July 28th, the bicentenary of the country’s independence, Pedro Castillo declared that he would not govern from the presidential palace. 

Built on the site of the house of Francisco Pizarro, the Spanish conquistador, the palace is a “colonial symbol”, he said, which he would turn into a museum. 

Three months later President Castillo is quietly living and working there after all. 

It is a sign that whatever Peru’s hard-left president might like, the country is not in the throes of revolution.

Rather Mr Castillo’s presidency has been defined so far by his political inexperience and indecision, the extremism and infighting of his allies and his weak mandate. 

A rural schoolteacher, farmer and union activist from a small town in the Andes who had never before held political office, his victory by just 44,000 votes out of 17.5m was a surprise. 

For his supporters he represents both the Peru that has not shared fully in the country’s economic growth and a provincial rebellion against Lima, the capital. 

He won because politics has fragmented, because the pandemic exposed injustice and neglect and because many Peruvians could not bring themselves to vote for his opponent, Keiko Fujimori, a conservative whose father ruled the country as a corrupt autocrat in the 1990s.

Mr Castillo wasted his first nine weeks in office, appointing a dysfunctional cabinet of the far left that many Peruvians saw as an affront. 

His own political base is of radical teachers, many close to the former Maoist terrorists of the Shining Path. 

Police records suggested that the labour minister may have taken part in terrorist attacks. 

Vladimir Cerrón, the boss of Perú Libre (Free Peru), the party under whose banner Mr Castillo ran, is a Cuban-trained Leninist doctor. 

Mr Cerrón tried to co-govern through Guido Bellido, his nominee as Mr Castillo’s first prime minister, an agitator who publicly countermanded any sign of moderation from the president. 

Mr Cerrón and Mr Castillo both want a constituent assembly, the device through which other leftist Latin American presidents have imposed authoritarian regimes.

With the government destabilising itself, the currency depreciated daily, pushing up inflation (to 5.2% over the past year). 

The opposition-controlled Congress began to murmur of impeachment. In early October Mr Castillo “decided to take some decisions in favour of governability”, as he put it.

For a start, he replaced Mr Bellido with Mirtha Vásquez, a human-rights lawyer and former speaker of Congress. 

Although she has leftist convictions, she is seen as realistic and consensual. 

Of a constituent assembly, she said the government “is not going to propose this for tomorrow” and that its priorities were vaccination, reopening schools and economic recovery. 

At the same time Mr Castillo reappointed Julio Velarde, the respected central-bank president, for a fourth five-year term. 

That calmed the currency market. 

“We are left-wing, but we are not going to do crazy things,” insists Pedro Francke, the economy minister.

The new cabinet is only a marginal improvement. 

The interior minister is a former policeman with a string of (unfair, he says) disciplinary reprimands. 

As a lawyer he has represented arms traffickers as well as Mr Cerrón (who was convicted of corruption). 

Only four or five ministers have a reputation for competence. But at least Mr Castillo has bought some time.

Can he use it to achieve change that benefits poorer Peruvians? 

The government wants to expand tax revenues from 15% of gdp to 17%, to spend more on health care, education and family farming. 

Mr Francke sees scope to raise taxes on mining companies, which are enjoying high prices, and to crack down on evasion. 

He has asked the World Bank and the imf to advise on tax reform “so that it’s not anti-competitive”. 

Whereas Mr Bellido had threatened to nationalise the Camisea natural-gas field, Ms Vásquez’s team is studying ways to build pipelines so that more Peruvians can benefit from it.

Brothers in arms, and government

Mr Castillo faces two big problems. 

He mistrusts “technocracy, the market, business people and Lima”, says an official who has dealt with him. 

He shuns the media, preferring rallies with his base in the interior. 

That mistrust is reciprocated. 

Many in private business are alarmed, especially by the threat of a constituent assembly. 

While output has already recovered from last year’s slump (though employment has not), lack of confidence means that Peru will be lucky if its economy grows by 3% next year. 

Lima’s once-booming property market is dead. 

Capital and business people are leaving the country.

The second problem is that the government’s diagnosis of Peru’s difficulties is mistaken. 

It is not the market economy that has failed but an inefficient state. 

Tax collection is low because 70% of Peruvians work informally. 

In many ministries, Mr Castillo’s team are placing supporters in senior posts for which they are unqualified. 

That has happened in the social-development ministry, which has a big role to play in ensuring that the 3m Peruvians who fell into poverty last year get out of it. 

The new education minister is a friend of Mr Castillo, and a former teacher, who wants to repeal a successful reform that requires teachers to be subjected to evaluation and paid according to performance.

Mr Castillo and his supporters reject the idea of ending up like Ollanta Humala, a former president who campaigned as a radical leftist but presided over a mildly social democratic government. 

Yet that may be the only way for Mr Castillo to survive for five years. 

“The country is so complicated, there’s no space for their more radical proposals,” says Miguel Castilla, who was Mr Humala’s economy minister. 

It looks likely to become even more complex. 

A True Central Banker 

Doug Noland 


Who can blame him? Certainly not me. 

October 20 – Financial Times (Martin Arnold and Guy Chazan): 

“Jens Weidmann has decided to step down after a decade as head of Germany’s central bank, only weeks after the country’s general election and shortly before a crucial decision on the future of eurozone monetary policy. 

The president of the Bundesbank has been one of the most vocal critics of the ultra-loose monetary policy pursued by the European Central Bank, where he fought an often lonely battle against its bond buying and negative interest rate policies. 

The 53-year-old said… he was leaving for ‘personal reasons’. 

But colleagues said he was tired of opposing ECB policies and expected these frustrations to increase as the economy recovers, inflation rises and the ECB’s generous stimulus becomes harder to justify.”

Jens Weidmann fought the good fight – a superior intellectual warrior overwhelmed by the onslaught of rank inflationism. 

He is a statesman in an age of few, a too often lone voice for sanity in a world of monetary absurdity. 

The foundation of Weidmann’s analytical framework rests on the profound importance of two simple words (you won’t hear uttered by a U.S. central banker): “stable money.” 

Weidmann’s plight is testament to why virtually every central banker falls in line.

 From the FT: 

“Labelled by former ECB president Mario Draghi as nein zu allem, no to everything, Weidmann articulated the view of monetary hawks…” 

While Weidmann resigns with scant fanfare, inflationist extraordinaire “Super Mario” governs as Italy’s Prime Minister. 

As for U.S. inflationism luminaries, while it’s unclear if Ben Bernanke still collects millions from lunch dates and appearances ($250k for 40 minutes in Abu Dhabi! ), collaborator Janet Yellen runs the U.S. Treasury. 

I can only imagine how deeply frustrating the past decade has been for Weidmann. 

To know you’re right on such critical analysis, but to see it not matter - year after year. 

Fighting to safeguard humanity from The Scourge of Monetary Disorder and Inflationism, only to be designated the merciless villain. 

To repeatedly have no choice but to compromise, while recognizing that the slippery slope of inflationism ensures ever greater concessions culminating in future catastrophe. 

And to witness your analytical adversaries transformed into public heroes, understanding it’s all a sham – an Inflationary Mirage. 

With contemporary central banking now taking on water, I don’t fault Weidman for jumping ship. 

We should hope Weidmann continues to speak and write. 

We’ll need his deep insight and sound intellectual framework, especially when the loss of credibility leaves central bankers scrambling to resurrect more traditional doctrine and policies.

“The side effects of low interest rates. 

Research has found that risk-taking becomes more aggressive when central banks apply unconditional monetary accommodation in order to counter a correction of financial exaggeration, especially if monetary policy does not react symmetrically to the build-up of financial imbalances. 

In the end, putting too much weight on countering immediate risks to financial stability will create even greater risks to financial stability and price stability in the future.” 

Jens Weidmann: Economics Club of New York, April 23, 2012

“Central banks create money by granting commercial banks credit against collateral or by buying assets such as bonds. 

The financial power of a central bank is unlimited in principle; it does not have to acquire beforehand the money it lends or uses for payments, but can basically create it out of thin air. 

The printing of money is an appropriate image here; from an economic perspective, the printing press is not necessary, as the creation of money primarily shows up on the central bank’s balance sheet, on its accounts…

If central banks can potentially create an unlimited amount of money out of thin air, how can we ensure that money remains sufficiently scarce to preserve its value? 

Does this ability to create money more or less at will not create the temptation to take advantage of this instrument to create additional leeway short term, even at the risk of highly probable long-term damage? 

Yes, this temptation certainly does exist, and many in monetary history have succumbed to it. 

Taking a look back in time, this was often the reason for establishing a central bank: to provide those in power with free access to seemingly unlimited financial resources. 

However, such government interference in central banking, combined with the government’s large demand for funding, often led to a strong expansion in the volume of money in circulation, causing it to lose value through inflation. 

In light of this experience, central banks were subsequently established as independent institutions, with the mandate to safeguard the value of money, in order to explicitly keep the government from co-opting monetary policy.

The independence of central banks is an extraordinary privilege – it is, however, not an end in itself. 

Instead, its primary purpose is to use its credibility to ensure that monetary policy can focus unhindered on preserving the value of money. 

Independent monetary policy combined with policymakers with a well-functioning, stability-oriented compass are a necessary – but not a sufficient – condition for preserving the purchasing power of money as well as public confidence in it. 

Of course, it is important that central bankers, who are in charge of a public good – in this case, stable money – bolster public confidence by explaining their policies. 

The best protection against temptation in monetary policy is an enlightened and stability-oriented society.” 

Jens Weidmann: Money creation and responsibility, September 18, 2012

“The mandate to safeguard the value of money, in order to explicitly keep the government from co-opting monetary policy.” 

“The independence of central banks is an extraordinary privilege… its primary purpose is to use its credibility to ensure that monetary policy can focus unhindered on preserving the value of money.” 

“In the end, putting too much weight on countering immediate risks to financial stability will create even greater risks to financial stability and price stability in the future.” And from his resignation letter, “

A stability-oriented monetary policy will only be possible in the long run if the framework of the monetary union ensures the unity of action and liability, monetary policy respects its narrow mandate and does not get caught in the wake of fiscal policy or the financial markets.” 

A True Central Banker.

In the euro zone, the U.S. and globally, monetary policy has ventured recklessly away from its narrow mandate and is today trapped in the wake of fiscal policy and financial market dictate. 

Surely Weidmann sees the writing on the wall – and it would be too much to endure in the type of crisis backdrop he has worked so diligently to guard against. 

As the President of the Bundesbank, he understands that once the forces of monetary inflation have been unleashed, they become almost impossible to repress. 

Moreover, those seeking to ward off monetary disaster will be villainized and blamed for the bust. 

On a personal basis, having warned for more than two decades of inflationism’s eventual peril, I dread the prospect of chronicling the unfolding debacle. 

October 22 – Bloomberg (Thomas Mulier): 

“Consumers around the world are about to get socked with even higher prices on everyday items, companies from food giant Unilever Plc to lubricant maker WD-40 Co. warned this week as they grapple with supply difficulties. 

The maker of Dove soap and Magnum ice-cream bars jacked up prices by more than 4% on average last quarter, the biggest jump since 2012, and signaled elevated pricing will continue into next year. 

A similar refrain came from Nestle SA, Procter & Gamble Co. and Danone SA, whose products dominate supermarket aisles and kitchen cupboards. 

‘We’re in for at least another 12 months of inflationary pressures,’ Unilever CEO Alan Jope said… ‘We are in a once-in-two-decades inflationary environment.’”

U.S. society is receiving an education in rising prices. 

The New York Fed’s one-year inflation expectations index rose to 5.3%, the high for data going back eight years. 

Excluding the summer of 2008, the University of Michigan one-year consumer inflation expectations (4.8%) were the highest since 1982. 

The five-year Treasury “break even” inflation rate this week jumped 15 bps (23bps in two weeks!), surpassing 2.9% for the first time in at least two decades. 

Major U.S. equities indices this week rallied to all-time highs. 

Evergrande apparently made a delinquent bond payment thus, for now, avoiding default. 

Yet the air of unfolding global crisis remains. 

A three-percent Friday afternoon rally cut Brazilian equities losses for the week to 7.3%. 

Brazil’s currency sank 3.6% this week, increasing 2021 losses to 8.0%. 

Brazil’s local currency bond yields surged 78 bps to a near-five-year high 12.40%. 

Meanwhile, Turkey is stuck in their own political and monetary muck, with the lira’s 3.6% weekly drop boosting y-t-d losses to 22.6%. 

Turkish local currency yields jumped 70 bps to a near-five-year high 19.39%. 

WTI crude’s 1.8% rise pushed 2021 gains to 73%. 

Fearing transitory is morphing into chronic inflation, global central bankers and bond markets are taking notice. 

Jumping another nine basis points to 2.12%, benchmark U.S. 

MBS yields are back to highs since March 2020. 

Also trading to pandemic highs, two-year Treasury yields rose six bps this week to 0.46%. 

October 18 – Financial Times (Madison Darbyshire): 

“Nearly 900,000 individual accounts traded shares of GameStop in a single day after a 90-fold increase at the height of the ‘meme stock’ craze, according to a report by the US securities regulator. 

GameStop, a struggling video games retailer, became an emblem of the mania that gripped markets in January when its shares surged by 2,700% in less than three weeks. 

Individual traders organised on online message boards and collectively unleashed furious rallies in certain stocks. 

The US Securities and Exchange Commission studied the events and… released a report that offered a first glimpse into the true scale of the phenomenon. 

For GameStop, the number of individual accounts trading its shares rose from about 10,000 a day at the start of the year to nearly 900,000 at the peak on January 27.”

900,000 individual accounts trading GameStop in a single session. 

I’ll add this fun fact to my list of evidence of a full-fledged mania. 

As a mania, we should not expect the U.S. equities market to behave normally. 

Not that 2007 was normal, yet recall that stocks in October surged to record highs despite the faltering mortgage finance Bubble. 

Buying every dip has been too easy. 

Ditto for squeezing the shorts. 

Yet the biggest fun and games are thriving throughout derivatives markets, where those buying protection repeatedly watch their hedges collapse in value. 

With yields rising and China’s Bubble faltering, there has been ample justification over recent weeks to hedge market risk. 

And when markets reverse higher, the unwind of hedges and bearish positions helps propel market rallies. 

In a historic speculative Bubble, shenanigans will work great until they don’t.

October 15 – CNN (Michelle Toh): 

“Evergrande's unraveling is still commanding global attention, but its troubles are part of a much bigger problem. 

For weeks, the ailing Chinese real estate conglomerate has made headlines as investors wait to see what will happen to its enormous mountain of debt. 

As the slow-moving crisis unfolds, analysts are pointing to a deeper underlying issue: China's property market is cooling off after years of oversupply… 

Mark Williams, chief Asia economist at Capital Economics, estimates that China still has about 30 million unsold properties, which could house 80 million people… 

On top of that, about 100 million properties have likely been bought but not occupied, which could accommodate roughly 260 million people, according to Capital Economics estimates. 

Such projects have attracted scrutiny for years, and even been dubbed China's ‘ghost towns.’”

I’m convinced China’s Bubble is a disaster. 

Things will likely prove even worse than expected. 

According to Capital Economics, the number of unoccupied Chinese apartment units is up to 130 million – 30 million unsold and 100 million bought but not occupied.

October 20 – Bloomberg: 

“China’s housing market slump has intensified in recent weeks as sales plunge and more developers default on their debt. 

Now the downturn has reached another milestone: home prices have begun falling for the first time in six years. 

The 0.08% drop in new-home prices across 70 cities in September may be small, but it poses a potentially big blow for an economy that counts on property-related industries for almost a quarter of output. 

Homebuyer sentiment is evaporating as a crisis at China Evergrande Group ripples through the industry… 

September is traditionally a peak season for the home market. 

Yet residential sales tumbled 17%, investments slid for the first time since early 2020, and the rate of failed land auctions climbed to the highest since at least 2018 -- potentially hurting local government coffers… 

The downturn has continued into this month. Existing-home sales plunged 63% from a year earlier in the first 17 days of October, according to a Nomura Holdings Inc. note…”

The key data point: Existing apartment sales were down 63% y-o-y during the first half of October. 

And nuggets from the Financial Times (see China Watch): 

“…A property sector that represents 29% of Chinese gross domestic product and is more than $5tn in debt. 

Some 41% of the Chinese banking system’s assets are associated with the property sector, and 78% of the invested wealth of urban Chinese is in housing.”

October 19 – Bloomberg: 

“China’s cash-strapped developers are becoming reluctant to bid for land during the nation’s property slump, threatening to undermine a $1 trillion revenue source for local governments and deepen the economic slowdown. 

About 27% of land parcels offered by local governments went unsold in September as no developer submitted bids -- the highest rate since at least 2018… 

Proceeds from land auctions across the country plunged 18% in August from a year earlier, the biggest decline in almost three years… 

Faced with weakening funding access and rising borrowing costs amid the deepening crisis at China Evergrande Group, many developers have been refraining from replenishing their land holdings. 

In one sign of how tight financing has become, the industry’s borrowings from banks dropped 8.4% last month, the most since 2016… 

‘Developers are hoarding cash to avoid becoming the next Evergrande,’ said Larry Hu, head of China economics at Macquarie Securities Ltd. 

‘The contagion risk is real.’”

The consensus view holds that the so-called “great financial crisis” could have been avoided, had only the Fed bailed out Lehman. 

Surely the great Beijing meritocracy is smart enough to avoid such a disastrous blunder. 

Yet I just don’t believe a Lehman bailout would have changed much. 

There was too much Bubble-related financial rot and economic maladjustment. 

Crisis was unavoidable, as it is today in China.’

There’s always an ebb and flow to Crisis Dynamics. 

Especially in major Bubbles, the specter of devastating collapse will have desperate policymakers employing extraordinary measures to hold crisis at bay. 

There will be relief rallies, along with bouts of optimism that government efforts are working to resolve systemic fragilities. 

Short squeezes and the unwind of hedges temporarily bolster market confidence. 

Over time, however, fundamental deterioration takes an increasing toll – chipping away at increasingly fragile confidence. 

At some point, with the catalyst clear only in hindsight, there is a flash realization that the authorities do not, in fact, have the situation under control: “Lehman Moment.”

China’s faltering Bubble creates a unique situation. 

Beijing has enormous resources available to deploy. 

They can withhold information from their citizens. 

They can obfuscate and manipulate. 

They will initially ring-fence their banking system. 

But I am skeptical they can sustain ridiculously overvalued apartments often of suspect quality. 

And it will be impossible to suppress news of sinking apartment prices. 

Word will travel quickly for subject matter of such keen national interest. 

How owners of depreciating apartments react is a huge unknown. 

Will millions of units hit the market, with panicked sellers willing to accept steep discounts? 

Will owners of unoccupied apartments mail keys to their banks and stop making payments? 

National protests and resulting government crackdowns? 

Darkening public moods for apartment speculation, the economy, the communist party and the world?

I am also skeptical that, short of stringent capital controls, Beijing will be able to suppress financial outflows. 

And as Crisis Dynamics unfold, Beijing will be challenged to control de-risking/deleveraging dynamics. 

How much speculative leverage has accumulated over this incredible cycle remains the $64 TN question. 

But we’re so early in the process, and it’s not fruitful to jump too far forward. 

After trading to 75% earlier in the week, Evergrande bond yields dropped to 67.4% after holding default at bay. 

An index of Chinese high-yield dollar bond yields dropped from 20% to 17.8%, after beginning September at 12%. 

China’s sovereign CDS fell from 49 to 46.5 bps, with most Chinese bank CDS also declining moderately. 

Despite the modest Chinese Credit relief rally and record U.S. stock prices, an index of Emerging Market CDS ended the week higher. 

Brazil's sovereign CDS surged 34 bps to a 13-month high 236 bps. 

Turkish CDS jumped 11 to 470 bps, the high since March. 

And local currency bond yields continue their upward march, with yields rising 28 bps in Russia (high since March ’20), 13 bps in the Czech Republic (high since 2012), 10 bps in South Africa (17-month high), 10 bps in Mexico (high since March ’20), and eight bps in Poland (high since May ‘19). 

Despite ongoing “developed” central bank QE liquidity injections, global financial conditions have begun to tighten. 

The extraordinary confluence of surging inflation, spooked central bankers and a faltering Chinese Bubble creates momentous risks for a highly levered world. 

COP26 is the real thing and not a drill

The path to a new energy economy is clear, but it is technically and politically difficult

Martin Wolf

© James Ferguson



The latest report from the Intergovernmental Panel on Climate Change confirms that human activities are having a profound effect on the climate. 

But, more happily, the International Energy Agency’s World Energy Outlook 2021 shows that we know what to do about it, in substantial detail and at an affordable cost. 

Yet we are not doing what we should do and so emissions continue to rise. 

Will that change at COP26 in Glasgow? 

I doubt it.

It is no longer necessary to debate the science of anthropogenic climate change. 

What is essential, instead, is to focus on what needs to be done now. 

On this, the WEO 2021 is perfectly clear.

It distinguishes four scenarios: “stated policies” (STEPS), which consists of the actual policies of governments; “announced pledges” (APS), which assumes all of their pledges will be met in full and on time; “sustainable development” (SDS), which are the UN’s sustainable development targets; and, lastly, “net zero emissions by 2050” (NZE), which is just what it says it is.

STEPS merely stabilises emissions, guaranteeing ever-rising temperatures. Even APS would lower emissions only to 20 gigatonnes of CO2 per annum by 2050. 

Under both of these scenarios, temperatures would continue to rise. 

NZE would deliver net zero emissions by 2050 and a median temperature increase of 1.5°C above pre-industrial levels but it would also need to cut global emissions by at least 40 per cent by 2030. (See charts.)


We are in a novel predicament: revolutionising the energy system has become a necessity. 

Yet, insists the IEA, the revolution is actually technically feasible and affordable. 

All it takes is will. 

In one generation we need to shift to a new energy economy whose outlines are clear and much of which is already technically feasible. 

The core of the new system would be electricity generated by renewables. 

While electrification is key, there would need to be other energy sources, especially hydrogen and bioenergy, for some industrial and transport uses. 

Many would insist that there will need to be a role for nuclear electricity, too.


The world will require a huge acceleration in the supply of clean electricity in the next decade. 

But there will also need to be vast improvements in energy efficiency, in reducing leaks of methane, a potent greenhouse gas, and in innovation, especially in the hard-to-abate sectors. 

Crucially, the transformation has to be global. 

The battle will ultimately be won or lost in emerging and developing countries, which have the fastest growth in population and in demand for energy. 

Today, for example, almost 770m people live without electricity.


Innovation will play a crucial role. 

We need, above all, to learn how to manage the complex new electricity systems. 

This will demand digital technologies, which must, in turn, be made secure against cyber attacks. 

Also important will be innovation in industrial processes. 

The new technologies needed will include advanced batteries, hydrogen electrolysers, advanced biofuels and innovations for the capture and use of CO2. 

That will require big investments in research and development.


All this will require huge investments by both public and private sectors, with the latter guided by the right incentives and regulations. 

The pattern of investment in energy will be transformed, from fossil fuels towards batteries. 

According to the WEO 2021, investment related to the transition to zero emissions will need to reach $4tn annually by 2030 from around $1tn now. 

This high investment will be partly compensated by lower operating expenditures: average household energy bills should, argues the IEA, actually be lower under NZE in 2030 and 2050 than under the do-nothing STEPS.


The biggest challenge will be financing the needed investment, especially in emerging and developing countries (other than China). 

Multilateral development banks will have to play a leading role. 

But much of that will need to be in catalysing private investment. 

Also crucial will be providing the necessary knowhow for developing countries to leapfrog into the new energy economy. 

Yet, in many emerging and developing countries, coal is the dominant fuel for electricity generation. 

Phasing it out will be a tough challenge.


While there seems to be a clear path towards a zero-emissions energy economy, it is a really difficult one. 

It is hard technically and even harder politically. 

On the former, the report lays out the complexity of bringing in a radically new system, some of whose operating details are still unclear, while ensuring that households and businesses continue to have the energy they not only need, but will insist upon. 

On the latter, the most pressing concern of governments must be exactly this: lighting, heating, cooling and transportation are not “nice to have”. 

If people who are used to these find them unavailable or unaffordable, they will react with incandescent fury. 

Our current predicament of high energy prices is a sobering warning. 

If this energy revolution is to happen, it must be planned and executed with an understanding of both the many complexities and the risks of a political backlash should it go wrong.

As the IEA report stresses, governments must play a central role in dealing with this huge global externality. 

Only by acting co-operatively can they create the policy framework for such a big shift in private behaviour. 

COP26 may be the last chance to put humanity on the path to net zero by 2050. 

If governments do not take that chance now, the shift will probably not happen with the needed scale and speed. 

It is an immense responsibility, and no less immense task. 

Governments have no decent choice but to rise to the occasion. 


https://www.ft.com/content/799b7b93-9ec5-4318-9ac1-1c82cb81f96d

Buttonwood

Making sense of the chaos in commodity markets

The 2000s were about the supercycle. The 2020s are about supermayhem


The world championships of slot-car racing are a microcosm of mayhem. 

Tiny remote-controlled models of cars fly up, down and off a convoluted circuit faster than befuddled spectators can follow. 

Forecasting winners is impossible. 

This year’s race, due to be held in America, was cancelled owing to travel restrictions. 

But amateurs of high-risk betting might instead find consolation in the equally bewildering, rapidly changing world of commodities.

Until recently these seemed comfortably installed in the fast lane; the Dow Jones Commodity Index rose by about 70% in the year to June. 

But the rally has since run out of puff. 

Some materials, such as lithium, continue to climb. 

Other once-hot commodities have gone into reverse. 

The price of iron ore is down by 45% since its peak in mid-July; lumber, by 63% since early May.

Things used to be much simpler. 

During the 2000s China’s rise fuelled a commodity “supercycle”—a prolonged period of high prices. 

When Chinese growth ebbed in the mid-2010s the sustained boom ended. 

This time, however, no single motor is propelling commodities upward. 

Both supply and demand are being hit by a series of short-term shocks that are interacting in unpredictable ways, creating a sense of chaos.

Three categories of shock matter. 

The first is the stop-start, uneven nature of the economic rebound. 

China seemed on a tear early this year but has since faltered. 

America is going at full throttle, with Europe in its trail, but the Delta variant and supply bottlenecks may slow it down. 

Many poor countries have yet to pick up pace. 

All this creates sudden surges in demand for raw materials at a time when both producers and the shipping infrastructure, still disrupted by local bouts of covid-19, are already under strain. 

The price of copper was pushed up as demand recovered, but also because of mine closures in South America early in the pandemic. 

Freight futures, which investors, curiously, class as a commodity, have surged.

At the same time, governments are intent on speeding up the green transition. 

This creates demand for the wood and the metals used to construct wind and solar farms, and boosts natural gas, a popular bridge between the dirtiest fuels and clean ones. 

Lithium, used in electric-vehicle batteries, rose by 21% in September alone. 

The same underlying cause—climate change—is causing disruptive weather events. 

Snow in Brazil, for instance, has helped push coffee prices up by 22% since early July. 

In August Hurricane Ida shut down most of the offshore oil and gas output in the Gulf of Mexico.

Geopolitical tensions, the third driver, muddy the outlook further. 

Australia, a mining and farming giant, has entered a new alliance with America that is intended to contain China, its main customer, after the government in Beijing imposed embargoes on its prized exports. 

Russia is accused of limiting natural-gas sales to Europe to justify a controversial pipeline linking it to the continent. 

The European gas spot price has shot up by more than 80% since mid-August.

Combine these factors and you get an insight into the commodity chaos. 

Iron ore has cratered because China no longer wants so much steel. 

But coking coal, the other ingredient in steelmaking, is glowing hot because Mongolia, a big producer, is in lockdown.

Oil crossed $80 a barrel for the first time in three years on September 28th. 

Prices are high because opec and its allies are being unusually disciplined in limiting output, and shale wells in America, often quick to turn on the taps, are instead paying down debt. 

That would typically boost corn, the main component of American biofuel. 

But President Joe Biden is mulling a cut to the amount of biofuels refiners must blend into the total fuel pool, dampening demand. 

The price of palladium, used to make catalytic converters, has slumped by 25% in the past month because a shortage of microchips has halted car production.

Jean-François Lambert, a former head of commodity-trade finance at hsbc, a bank, reckons the mayhem could well last until 2025, when the pressures on the market will start to ease. 

That might be why few investors seem keen to bet on the direction of prices. 

Although commodity markets have attracted strong inflows since the start of the year, analysts at Capital Economics, a consultancy, reckon that is mostly down to the popularity of exchange-traded funds tracking gold. 

Considering the chaos in the world’s commodity markets, it’s no surprise that investors want a haven. 

Technology can help deliver cleaner, greener delicious food

Whether consumers want it is another question, says Jon Fasman



“Tell me what kind of food you eat, and I will tell you what kind of man you are,” wrote Jean Anthelme Brillat-Savarin, a French lawyer and epicure, in the early 19th century. 

The epigram opens “The Physiology of Taste,” one of those delightfully dilatory, observational works at which his age excelled.

The food that most people eat—especially in rich countries, but increasingly in poor- and middle-income ones, too—reveals them to be inhabitants of a highly globalised economy, spectacularly rich in choices. 

Peruse the shelves of a rich-world supermarket and you will find salmon from Norway, prawns from Vietnam, mangoes from India, strawberries from Turkey, cured meats from Italy and cheeses from France. 

Meat, a luxury for most people through much of history, is available in such affordable abundance that, in the rich world, most who do not eat it regularly forgo it as a matter of choice, not necessity. 

Much of it is laced with chemical additives that reduce spoilage, enhance flavour or serve some other need on the part of the producer.

Such a diet has only become possible in a very particular world, one in which a large proportion of the planet’s surface is given over to farms and pasture, food production is energy-intensive, pesticides abundant, intercontinental shipping cheap and food processing an advanced industrial undertaking. 

It is only possible, that is to say, at a time when human desires, and the economies built around them, rank among the planet-shaping forces of nature: a period that has come to be known as the Anthropocene.

The Anthropocene diet that the world’s well-off inhabitants enjoy would amaze all previous generations. 

But like most remarkable modernities, it is not without its costs. 

Meat is cheap because it is produced with great cruelty. 

Billions of animals spend brief, miserable and often pain-racked lives crammed together in airless sheds. 

They are ripped from their mothers; pumped with drugs; castrated without anaesthetic; eviscerated while alive; or all of the above.

Picking berries and lettuce is backbreaking labour; the people who do it often lack health insurance, job protections and a living wage. 

Many of the world’s fisheries run on slave labour. 

Depleted soils are chemically tarted up into a fecund semblance of health with nutrients straight from the factory. 

Fertiliser and animal-waste runoff create algal blooms that strip the oxygen from ever more, ever larger dead zones in littoral seas. 

Few human activities emit more greenhouse gases than raising animals—particularly cattle, for which ranchers cut down vast swathes of forest. 

The processing that serves to make food cheap, tasty and addictive strips out nutrients while adding fats, sugars and salt.

It would be easy to conclude, per Brillat-Savarin’s maxim, that the Anthropocene diet’s consumers are cruel to animals and indifferent to both their planet’s future and their own—because the Anthropocene diet is all of those things. 

That would be far too harsh. 

Taking a moral inventory of every food’s inputs is a lot to ask of, say, a mother on a tight budget, on her way home from work, who just wants a dinner that makes her children happy. 

That does not mean she does not care, or would not prefer a system that does better by her family and the world.

Many have begun to alter their dining choices to help bring about such a system. 

The amount of meat eaten in the world is growing, but less so in richer countries than poorer ones. 

The share of people who identify as vegetarian, vegan or “flexitarian”—meaning their diet is centred on plants but that they do not entirely eschew the eating of animals—is rising. 

In Britain, the number of vegans more than quadrupled from 2014 to 2019.


In America, sales of organic food—which people take to be better both for themselves and for the environment—rose from $13.3bn in 2005 to $56.4bn in 2020; Europe saw a similar rise. 

Restaurant menus often name the farms that supply their food, giving diners a greater sense of connection to what they are eating. 

The word “locavore”, coined in 2005, was an American dictionary’s “word of the year” by 2007.

There is a performative aspect to much of this. 

People want what they eat to say good things about them—both to others and to themselves. 

This is neither an ignoble desire nor a new one. 

The dietary restrictions set down in Leviticus and Deuteronomy, as the late Hayim Halevy Donin, a rabbi, explained in his book “To Be a Jew”, offer “a good example of how Judaism raises even the most mundane acts...into a religious experience.” 

Eating, common to all people, becomes an act of Jewish self-definition.

Flexitarian, locavorous and organic eating are not religious. 

But they make a moral statement: the belief that participating in the hyper-rationalised, hyper-calorific, hyper-processed industrial first-world food system is wrong. 

What they do not in themselves provide is a way to set that system right, in part because they do not properly assess its flaws. 

The raising of organic food, for example, typically requires more land than other methods, and can often produce greater greenhouse-gas emissions. 

A personal devotion to the legume over the nugget or the aubergine over the burger may save you from direct complicity in the suffering of chicken and cow; but it does not stop the suffering.

But what if the system itself could be changed? 

What if people who shared the distaste for today’s food system could encourage the building, seed by seed and cell by cell, of ways to provide a delicious, healthy, diverse array of foods with markedly less cruelty and environmental damage?

Anthroprotein and other food groups

This report will survey an array of technologies being touted as ways of transforming the world’s food-production system not by doing old forms of agriculture in a less cruel and more sustainable way, but by doing things that have never been done before.

Heretofore niche proteins, such as insects and seaweeds, are being explored not just for their gourmet potential—which is higher than most might believe—but also as ways to refashion food chains. 

Yeasts are being programmed to grow proteins that make a soy-protein patty cook and bleed in the way a minced cow does. 

Inland saline aquaculture promises to provide fresh seafood to people thousands of miles from an ocean. 

Crops are being grown in soil-free shipping containers just blocks from the city dwellers who will eventually eat them, rather than half a world away. 

Cells taken from a living animal in a simple biopsy are being used to grow meat in bioreactors, providing familiar sources of protein without the need for slaughter or industrial-scale farming and the cruelty and health hazards those things entail.

Immense hurdles remain. 

It is one thing to grow a hamburger in a tank, another to get people to eat it, and a third to provide competitively priced tankburgers by the billion. 

Growing vegetables in skyscrapers might be environmentally beneficial, but field-based agriculture remains much cheaper. 

Practical and necessary improvements to today’s farms, such as regenerative farming techniques, could be sidelined in favour of incoherent and unsustainable Utopian neophilia that offers niche feel-good foods for a few, but little if anything for the many—or for the suffering animals. 

Some technologies which currently seem beneficial will turn out to incur unforeseen costs and harms, just as cheap meat has.

Yet there is something undeniably inspiring about this attempt to turn Brillat-Savarin on his head: deciding first what sort of person you want to be, and what sort of planetary settlement you want to embody, and then changing the world so that the kind of food it provides for you to eat fits that self-conception.

The movement has a recognisable, hard-to-resist ferment: a hype-heady nose and feel redolent of the terroir in which California raises its new technology. 

One starry-eyed Californian faux-meat scientist enthuses that the field feels like working in Silicon Valley in the 1970s: optimistic, dynamic and buzzy. 

The quest to change the world’s food system, though, begins in a grungy town at the other end of the state. 

And the story starts with a pea. 

America Needs to Be Honest

In seeking to restore America's role as a responsible global leader, US President Joe Biden has offered a broad set of national goals, committing to action on climate change, public health, equality, and many other issues. But to succeed, he will need to be more open about America's own failings.

Anne-Marie Slaughter


WASHINGTON, DC – September marked a new year in the Jewish calendar, for schools around the world, and in the realm of diplomacy, with the annual United Nations General Assembly in New York. 

New years are duly met with new resolutions, which tend to involve renewing one’s commitment to specific goals. 

But while it is usually individuals who engage in this practice, organizations or even nation-states can do the same.

In fact, the idea of a New Year’s resolution is one way to understand US President Joe Biden’s UNGA speech on September 21. 

The United States, he said, is “opening a new era of relentless diplomacy; of using the power of our development aid to invest in new ways of lifting people up around the world; of renewing and defending democracy.” 

He anchored these goals in values that were “stamped into the DNA” of the US and the UN: “freedom, equality, opportunity, and a belief in the universal rights of all people.” 

And he invoked respect for human dignity, individual potential, and “the inherent humanity that unites us.”

Biden’s speech offered a broad set of resolutions to renew American leadership in the world on issues including health, climate change, nuclear non-proliferation, counterterrorism, conflict prevention, developing-country infrastructure, food security, equality, and anti-corruption. 

He made clear that these goals will be pursued within a framework of both universalism and multilateralism.

But there was something missing from the speech. 

For resolutions to stick, they must be grounded not only in visions of the future but also in honesty about the past. 

Biden has been clear about many of the biggest problems facing the world, and he has resolved that the US, along with its allies, will play a leading role in addressing them. 

But he should have signaled a genuine departure from past practice by expressing a greater willingness to learn from America’s own recent failures.

For example, when touting the US contribution of $15 billion to the global pandemic response and 160 million vaccine “doses of hope” for others around the world, Biden could have acknowledged that over one-seventh of the 4.7 million reported COVID-19 deaths globally were in the US. America’s disproportionately large share reflects its own inability to fight the coronavirus for most of 2020. 

To this day, stark political divisions continue to ensure that pockets of the country remain breeding grounds for new variants to emerge.

Moreover, when Biden spoke about his administration’s admirable and genuine commitment to dealing with climate change, he could have acknowledged that the US bears a disproportionately large share of responsibility for the problem. 

It has been a leading source of greenhouse-gas emissions for over a century, and its flawed political system has prevented it from committing to international agreements for longer than four years at a time.

When Biden raised the issue of America’s “forever wars,” he could have acknowledged that those wars killed far more civilians than soldiers in Iraq and Afghanistan. 

Even as the US was leaving Afghanistan, American drone operators mistakenly killed an aid worker and seven children.

When Biden described corruption as a “national security threat” that “fuels inequality, siphons off a nation’s resources, spreads across borders, and generates human suffering,” he might have added that the billions of dollars the US poured into Afghanistan and Iraq provided fuel for the very corruption he condemns. 

And he could have acknowledged that the US government knew as early as 2011 how corrupt the Afghan government had become, but decided not to expose or prosecute bad actors.

The reason to be more honest about these issues is not to wallow in America’s flaws and failings. 

Rather, it is to recognize the complexity of the problems America confronts, and its own complicity in them. 

By making clear that the US understands just how hard it will be to make progress, and that much will depend on it changing its own behavior, Biden can signal an intention to move beyond rhetoric.

After George Floyd’s murder by Minneapolis police in May 2020, many US companies and institutions issued statements condemning systemic racism, as if the problem was simply “out there,” floating in society. 

But as many people of color were quick to point out, addressing the problem requires that leaders acknowledge and confront the racism within their own organizations. 

The same logic applies to nation-states that have set their sights on global problems.

Another reason for being more honest is to lead by “the power of our example,” as Biden put it in his inaugural address. 

Although his UNGA speech never mentioned China and explicitly disavowed any intention of seeking a new Cold War, it drew a clear line between the (admittedly imperfect) democracies that seek to uphold the UN’s values and the authoritarian states that violate them at will.

That line does not divide countries full of good people from countries full of bad people, or good governments from bad (after all, plenty of democracies are badly governed, including in cities, states, and parts of the US federal government). 

Instead, the distinction is between countries that are dedicated to individual rights and those that are not. 

China, as its constitution makes clear, is explicitly committed to a socialist system, placing power and ownership in a collective of the people. 

Yet, in practice, the key difference between free countries and unfree countries lies in the people’s ability to hold their government to account, and thereby narrow the gap between what governments say and what they do.

A new year, whenever and however we mark it, should be an occasion for assessing that gap with radical honesty, and for using that assessment to guide a renewed commitment to professed ideals. 

If our leaders did that, the annual UNGA would look very different.


Anne-Marie Slaughter, a former director of policy planning in the US State Department, is CEO of the think tank New America, Professor Emerita of Politics and International Affairs at Princeton University, and the author of Renewal: From Crisis to Transformation in Our Lives, Work, and Politics (Princeton University Press, 2021).