The Violence of the Fourth Wave

"One Thing We Have Learned Is that COVID Is an Asshole"

Doctors and nurses at the intensive care ward in Leipzig University Hospital are fighting desperately to save the lives of corona truthers. It can be a thankless task.

By Tobias Großekemper in Leipzig


At 6 a.m. on a Monday morning, the start of the early shift, there are 19 extremely ill patients in the COVID-19 intensive care ward of the Leipzig University Hospital. 

And one dead body.

The man died a few hours ago in room B1115 and the corpse is lying on a bed, shrouded in a black plastic body bag. 

It will stay there for another two hours, in a room with two other patients. 

They are still alive, but have been put into artificial comas, sedated with benzodiazepines and opiates. 

Artificial lungs are supplying their blood with oxygen while dialysis machines have taken over the function of their kidneys.

At around 8 a.m., the morticians arrive and take away the body. 

There is no room set aside for mourning, no candles, no last moments of togetherness. 

That’s what it’s like to die in the coronavirus intensive care unit, where deaths are mounting as the fourth wave breaks over the country.

A total of 55 nurses work at Station IOI-C, and 12 of them are on duty on this Monday morning, along with an assistant who brings material into the room, picks up blood samples and returns with the results. 

With 18 patients already in the ward, it has actually reached full capacity, but new ones keep coming.

At mid-week, the seven-day incidence in the city of Leipzig was at 438.5 per 100,000 residents, and as high as 1,064.3 in the surrounding area. 

And finally, it is becoming clear to everyone that Germany is facing a catastrophic corona winter.

"We are certain that the fourth wave is going to be a nightmare," says Sylvia Köppen, head nurse at the Interdisciplinary Surgical Intensive Care Unit (IOI).

"It’s going to be a catastrophe," says Andreas Knauth, a nurse specialized in intensive care and anesthesiology.

"It just going to be terrible," says Anke Schrötter, also a specialist, who has been working in health care for 18 years.

DER SPIEGEL spent three days with her and her colleagues in a station that has already reached its limits. 

It is a place where the fear of what lies ahead in the coming months is at least as great as their incomprehension for a society that is simply carrying on as if the coronavirus were history.

Monday morning, 6:15 a.m., 19 patients in the station

"One thing we have learned is that COVID is an asshole," says Knauth, just beginning his third early shift in a row. 

He has two more ahead of him. 

The rings under his eyes tell you all you need to know about his work schedule: four late shifts, then a day off, five early shifts, two late, two early. 

And any time he doesn’t have off is full of stress. 

"You can have the perfect patient for seven hours, with all the values stable and everything going well. 

And then COVID will just rip him away."

Like all the nurses here, Knauth is in high demand. 

When he moved to Leipzig in 2018 with his family, he was able to choose which hospital he wanted to work in – and decided on the university hospital. 

When his patients are stable, he says: "It’s all good." 

In his next three early shifts, he will have sole responsibility for two patients in room B1113, both of whom are in artificial comas.

In the bed up front is a 47-year-old woman who weighs 100 kilograms (220 pounds), suffers from diabetes and chose not to get vaccinated. 

"It hits the obese first," says Knauth. 

In the next bed lies a 37-year-old who is just half her weight and fully vaccinated, but he had a lung transplant. 

To prevent the body from rejecting transplanted lungs, the immune system must be suppressed by way of medication, which led to the man’s severe case of COVID.

A black crust stretches across the man’s breast, a condition called necrosis – essentially dead tissue stemming from decubitus. 

Decubitus, commonly called bedsores, is a sign that the patient has been incorrectly positioned and is often an indication of poor care. 

But here, in the war against the virus, decubitus is but the collateral damage of survival. 

The patient has to lie on his stomach so that his lungs can be sufficiently ventilated. 

But if he lies on his stomach, his breast suffers.

"COVID takes the satisfaction out of nursing," says Knauth, saying that caregiving at a COVID intensive care ward has very little to do with the training he received. 

The primary goal here, he says, is not that of reestablishing health, rather it is a desperate battle aimed at somehow keeping the patient alive. 

In other words, it’s better to survive with an ugly scar on the thorax than it is to die beautiful. Knauth has a term for it: "survival pragmatism.”

A nurse carries the belongings of a deceased patient out of the ward. Foto: Sven Döring / DER SPIEGEL


The people that Knauth is helping to survive are all hooked up to ventilators. 

A thick tube with air leads into the mouth, joined by two smaller ones. 

One of them is used to pump air into a balloon so that the thick tube doesn’t slip out. 

The other is for the extraction of secretions. 

A tube going in through the nose leads to the stomach and provides the patient with nourishment. 

The dialysis catheter is attached to the neck, while the central venous catheter is in the groin. 

Then there is the urinary catheter and additional entry points in the arms. 

The patient is sedated with midazolam, a benzodiazepine and with sufentanil, the strongest opioid approved for use in Germany.

Caring for two patients in such a condition requires eight hours of hard work and extremely high levels of concentration. 

Mistakes can be deadly. 

Knauth must keep a close eye on a dizzying number of different drugs along with four machines. 

He has to keep track of blood levels, air pressure and saturation levels. 

He must correctly interpret the endless columns of numbers on the various screens and react appropriately. 

"It is exhausting over time," he says. 

"You can never relax." 

There is a constant chorus of peeps and rings. 

If there is just a quiet chirping, then "it’s all good." 

But when the sounds become shrill and loud, then things get hectic. 

Everything is monitored, but nothing is really under control.

Three years of training are required to become a specialized nurse, with an additional two years necessary to become an intensive care nurse. 

And it takes two more years, says Knauth, before you’re really confident about what you are doing.

His female patient has a fever of 39.8 degrees Celsius (103.6 degrees Fahrenheit) and her skin is cold to the touch. 

She manages 13 breaths per minute, with the help of a ventilator. 

Should her oxygen exchange get much worse, she might need to be hooked up to an ECMO machine, which completely takes over the function of the lungs.

Knauth’s other patient on this morning is managing to take 12 breaths per minute on his own. 

It is his 19th day in intensive care. 

He’s still not getting better, but at least he’s still alive. 

He, too, may ultimately need the ECMO machine.

"The ECMO doesn’t cure anything, it just buys you a bit more time," says Robin Müller, also a specialist nurse. 

It is, he says, a common misunderstanding. ECMO stands for extracorporeal membrane oxygenation – a machine that ensures that oxygen gets into the blood and carbon dioxide is pulled out. 

It is the last hope for COVID patients. 

And its operation, says Müller, is a "delicate balancing act," because it can cause serious health problems.

In order to stave off the ECMO machine for as long as possible, patients who are in artificial comas must be regularly turned. 

A doctor stands at his head with four nurses surrounding the bed, two on each side. 

"Which direction are we turning," asks the doctor. 

"To us," says Köppen, the head nurse. 

She and her partner pull on the patient while Knauth and his partner push. 

The doctor follows the rotation with the patient’s head and the tubes.

"Careful with the catheter!”

As the patient is being turned, a maze of wires and tubes must also be shifted. 

The patient is now lying face down.

"Ready?”

"OK.”

"Up.”

Eight interlocked arms belonging to four nurses bent over the patient lift the body 30, perhaps 40 centimeters above the mattress. 

Müller shoves two pillows under the patient, one in the breast area and the other just above the groin – part of the fight against bedsores.


Nurses in the intensive care ward at the Leipzig University Hospital Foto: Sven Döring / DER SPIEGEL


The perhaps most important principle in this intensive care station is "keeping the hallway clean." 

Contaminated protective clothing must remain in the rooms. 

Without exception. 

The nurses don their protective clothing outside the room, and then take it off inside before leaving.

On the way in, that means they must disinfect their hands, put on their gowns, put on their gloves, put on their facial protection, their FFP-2 masks and then their visors.

On the way out, they must first take off their gown then their gloves and facial protection, disinfect their hands, take off their visor, replace their FFP-2 mask, disinfect their hands again and then leave the room.

"I’m not particularly worried about contracting the virus here," says Felix Dietze, a 31-year-old nurse. 

He knows what he’s doing at the station, he says, and has protective equipment. 

"It’s a different story in the tram." 

He says he has been vaccinated and received his booster. 

If he is worried about anything, it’s that he could bring the virus home with him. 

His son is eight years old.

The beeping suddenly grows shriller and louder. 

A woman in room B1124, bed number 46, is extremely agitated and has pulled the breathing tube out of her throat. 

A nurse quickly dons her protective equipment and runs off.

Nurse Felix Dietze says he's afraid of bringing the virus home to his family. Foto: Sven Döring / DER SPIEGEL


Knauth learned the job from scratch. 

After finishing high school, he did his civil service – which used to be a mandatory alternative for those who didn’t want to join the military before both conscription and civil service in Germany were discontinued in 2011 – at a hospital and enjoyed the work. 

Now, Knauth says, he wouldn’t advise anybody to become a nurse.

Tuesday morning, 5:50 a.m., 22 patients in the station

The labor union Ver.di is setting up tents outside the main hospital entrance for a strike. 

They are demanding pay raises for nurses of 300 euros per month. 

"Money isn’t the problem," says Knauth, "at least not here." 

The situation is much worse, he says, in geriatric care. 

An intensive care nurse earns a gross average of around 45,000 euros per year.

Knauth says the union didn’t ask him to go out on strike. 

Had they done so, he adds, he would have told them that he still had to save the lives of a few anti-vaxxers.

It’s now time for the handover briefings outside the rooms, where they speak the sober jargon of their craft. 

"The cuff is overinflated." 

"Have the values been checked and sent off?" 

"The patient arrived yesterday during the late shift, not as bad as we had been told. 

Already in ventral position."

The man with the transplanted lung survived the night. 

"It’s all good," says Knauth.

Bed number 51 in room B1126: a 54-year-old male patient. 

He spent two weeks in an artificial coma, was regularly rotated from the ventral position to his side to his back. 

Until just two days ago, oxygen was continuously pumped into his lungs through a tube from a ventilator, an Evita V600. 

He was on dialysis until yesterday. 

Today, though, the man can speak. 

A nurse says that he has just claimed that the virus is an American invention and that vaccination is pointless.

"Here, on the inside, we are all preparing for the absolute worst," says head nurse Köppen, "and out on the street, people are talking about Christmas markets and plane flights." 

She simply can’t reconcile the two realities. 

It’s like they’re living in a parallel world full of suffering, labored breathing and death while outside, the party keeps on going. 

And politicians stand on the sidelines and do nothing.

"She's been living here for the last 18 months." Sylvia Köppen Foto: Sven Döring / DER SPIEGEL


In her early shifts, Köppen takes care of two patients. 

After that, she puts together the shift schedule, orders supplies, and takes care of some administrative work. 

Her colleagues say: "She has been living here for the last 18 months.” Köppen has the sharp facial features of a person under permanent stress. 

When she steps outside for a cigarette once or twice during her early shift, she wears a hoodie reading: "Mother nurse. 

Shocked by nothing."

Köppen no longer believes in such things as rationality, understanding and education. 

She says a television crew was at the hospital to film the suffering. 

After it was broadcast, she says, she was asked where she found all the extras to play the patients. 

She has seen family members of patients in intensive care expressing doubts that COVID is really dangerous. 

One COVID patient told her that he didn’t get vaccinated because he can’t stand politicians. 

"As if the politicians would care," Köppen says.

In Köppen’s world, the greatest share of which is the intensive care station, winter is going to last a long time – likely until March or April. 

"We were completely overwhelmed by the second wave," she says, adding that this one is going to be far worse.

"Even if huge numbers of people were to now get vaccinated," says Köppen, "they wouldn’t be fully protected until the middle of December. 

And that is too late to prevent the intensive care stations in the country from being overrun. 

"The catastrophe can no longer be prevented."

The new arrival in room B1115 is lying sedated on his back, his arms immobilized. "

A precautionary measure," says the nurse Robin Müller. 

He says that people who have a ventilation tube in their throats often reflexively try to pull it out. 

The new patient is doing relatively well compared to the other three in the room. 

"They are all suffering late-stage corona," says Alexander Leitner, 48, a doctor at the station. 

His nickname, Alei, is written on his mask.

Leitner says the coronavirus has taught him two things. 

The first is to recognize the most important things in life. 

Closeness with those he loves, spending time together, honesty with each other: All those things, he says, are more important than status or money.

Second, that society is undependable. 

Egotism has gained the upper hand, he says, and individual freedoms have been prioritized above all else.

Leitner walks into a room saying: "Peace, freedom and no dictatorship." 

It is the battle cry of the those in Germany who oppose all measures to combat the coronavirus pandemic. 

The doctor dives into his work, but then looks up after a bit and says: "In my next life, I’m going to be a corona truther." 

He pauses briefly. 

"I’ll print T-shirts, make my money and then retire, that’s what they do." 

Sarcasm can be a helpful tool in surviving the madness.

On the counter lies a sheet of paper printed with "The Story of Caspar, the Anti-Vaxxer." 

"The third wave had arrived with force, but he was convinced of his YouTube source: I don’t need vaccine, no, I don’t need vaccine!"

“A university hospital is like a giant ship, and the nurses are its engine room. 

If they are exhausted, you can’t do anything anymore and the ship grinds to a halt.”

Prof. Christoph Josten, medical director of the Leipzig University Hospital

"People don’t always understand our humor," says Müller. "When things start to get bad, the joking stops." From that point of view, the worst hasn’t yet arrived. But that situation won’t last long. The Dresden University Hospital is no longer taking patients, and some will soon be sent to Leipzig. 

What then?

Outside, Ver.di is still demonstrating for more money to be made available for nursing. 

Knauth says: "A much bigger problem is the shift work." 

When he emerges on Monday morning from the night shift, his work schedule notes that he has Monday "off" even though he has already worked for six hours that day. 

And then there are the rotations: Every few days, nurses are moved from the early shift to the late shift, and then to the overnight shift. 

When you’re young, says Knauth, you can deal with it. 

But then, he says, "it gets harder, and especially once you have a family." 

Knauth is 37 and has two children.

Knauth believes the problem is that nurses haven’t adequately joined forces in a labor union. 

"The largest group of health-care workers has the smallest lobby," he says. 

The unions, he adds, are small and fragmented, adding that nurses have never really learned to stand up for themselves. 

Knauth is not a member of a union either.

In the office of Christoph Josten, the university hospital’s medical director, a small globe sits on the shelf among the medical books. 

He warned way back at the beginning of November of the approaching "tsunami wave."

He says that when it comes to nurses, his hospital is in relatively good shape. 

Rents are affordable in Leipzig, there are plenty of young people in the city and lots of training programs available. 

"We know that the situation is quite different elsewhere," Josten says.

"A university hospital," Josten says, "is like a giant ship, and the nurses are its engine room. 

If they are exhausted, you can’t do anything anymore and the ship grinds to a halt." 

He says the hospital’s board decided in mid-September to cut back on activities and cancel non-essential operations to give staff a bit of a break, eliminate overtime and give people a chance to go on vacation. 

"Our primary goal was to give our staff a chance to relax and gather their strength," Josten says. 

And then the fourth wave arrived.

There is an important question that doctors are unable to answer, says Josten, one to which only society can provide a response. 

"To what degree can we tolerate a situation in which many patients must go without treatment because a specific group is blocking vital resources?" 

He means the group of those who refuse to be vaccinated.

Wednesday morning, 5:45 a.m., 20 patients in the station

The Day of Repentance and Prayer, on Nov. 17 this year, is a holiday in Saxony. 

Three-hundred meters away from the hospital entrance is a group of 10 men, a long night of partying behind them. 

They are drinking and smoking, with not a mask in sight.

Inside, at the intensive care station, Anke Schrötter, 44, is furious. 

One of her patients in room B1129 is responsive. 

The man told her that he didn’t get vaccinated, saying the vaccines can’t be trusted and people also die from the flu. 

His wife, who works in geriatric care, also has also chosen to forego vaccination. 

"We provide equal care to the unvaccinated and the vaccinated," Schrötter says. 

But hearing such things, she says, hardens you. 

Now, though, Schrötter has to move on and rotate a patient. 

She starts putting on her protective gear.

In 2019, around 55,000 protective gowns were used at the hospital, a number that rose by 132 percent in 2020. 

Before corona, they used 900 FFP masks, but usage spiked by 3,444 percent in 2020. 

When the second wave peaked around last Christmas and then finally abated in spring, "we were certain that we wouldn’t be able to withstand a third wave," says Knauth.

In the currently building fourth wave, says head nurse Köppen, they have treated 80 patients thus far, and 54 of them have been unvaccinated. 

"Vaccinated patients only end up in our station if they have a serious pre-existing condition," she says.

Schrötter, a wiry woman with shoulder-length blond hair, cared for the very first coronavirus patient admitted to the hospital. 

That was back in March 2020, and patients were flown into Leipzig from Bergamo in northern Italy, where the pandemic first flared in Europe. 

The disease was completely new back then and not all that much was known about it. 

Fear was everywhere, there was no way to treat infections and people were generally cautious. 

They stayed at home and practiced social distancing.

All of the 20 patients currently being treated in the intensive care ward are infected with the coronavirus, but only 15 are there because of the virus, including a woman who contracted the virus late in her pregnancy. 

The child was born via Cesarean delivery. 

Five patients ended up in intensive care for other reasons. 

One of them had a stroke, an elderly woman has abdominal bleeding, there is an attempted suicide, a victim of a car accident and a man who fell down the stairs when he was drunk.

"In the second and third waves, we hardly had any accident victims," says Köppen. 

People were more careful and there were fewer accidents. 

That, too, is different this time around. 

And what about the medical emergencies that are unavoidable? 

"More COVID patients makes it extremely difficult to treat non-COVID patients," she says.

In room B1115, a man dies at 11:42 a.m. 

He was still responsive when he was brought in, Müller said on Monday. 

He was complaining and saying that he didn’t need treatment. 

Now, he’s dead.

"In the last wave, corona patients spent an average of 10 to 20 days in intensive care," says Köppen. 

Now, in this wave, the patients are younger, and they die slower.

She doesn’t have precise numbers yet, she says, but she talked with colleagues in Berlin who have been dealing with the fourth wave for longer. 

"They say patients are spending much longer in intensive care."

After the man dies in room B1115, it gets unusually quiet at the station. 

The normal buzzing and beeping continues, but there are none of the alarms that so frequently crop up. 

"Totally unusual," says Knauth. 

He walks into the hallway and says: "What’s going on? 

Is this the calm before the storm?"

Outside, in front of the hospital entrance, a large Christmas tree has been set up. 

But the Christmas party has been cancelled. 


Trouble on the Horizon

Doug Nolan 


November 19 – Reuters (Francois Murphy and Paul Carrel): 

“Austria will become the first country in western Europe to reimpose a full COVID-19 lockdown, it said on Friday as neighbouring Germany warned it may follow suit, sending shivers through financial markets worried about the economic fallout. 

Europe has again become the epicentre of the pandemic, accounting for half of global cases and deaths. 

A fourth wave of infections has plunged Germany, Europe's largest economy, into a national emergency, Health Minister Jens Spahn said, warning that vaccinations alone will not cut case numbers.”

As desperately as we want to put Covid behind us, the irrepressible virus refuses to succumb. 

Germany reported a record 65,000 new infections Thursday. 

And, according to Bloomberg (Chris Reiter and Tim Loh), infections are now doubling every 12 days – a trajectory that if continued will overwhelm hospitals within weeks. 

“In Berlin, there were 79 intensive-care beds available for the city’s 3.8 million people on Friday, while in the northern port city of Bremen, there were just five beds for its 680,000 residents.”

Here at home, infections are on the rise again, as we head into colder weather and the holiday season. 

Friday from CNBC: “The U.S. reported a seven-day average of nearly 95,000 new Covid infections Thursday, up 31% over the past two weeks…” 

Outbreaks are up about 50% in two weeks in the Midwest and Northeast. 

My concern is elevated by fear of somewhat waning vaccine efficacy associated with the early vaccination push. 

I also suspect there will be less enthusiasm for booster shots. 

Reasons for optimism include natural immunities, Pfizer’s new antiviral pill, and a list of other encouraging treatments.

Meanwhile, I am not optimistic about the impact Europe’s Covid outbreak will have on the unfolding global financial crisis. 

Once again, Covid brandishes nefarious timing. 

China-related contagion had already created vulnerability. 

Now fledgling global “risk off” has de-risking/deleveraging increasingly impairing liquidity at the “Periphery.”

The euro dropped 1.3% this week to 1.13, the low versus the dollar since July 2020. 

Euro weakness (stoked by ECB dovishness) comes at a particularly inopportune time for the emerging markets. 

The dollar, having already gained momentum on the back of heightened EM risk aversion, traded above 96 for the first time in 16 months. 

Dollar strength is pressuring leveraged EM “carry trades,” a key dynamic in unfolding “Periphery” vs. “Core” Crisis Dynamics.

In general, crisis dynamics unfold initially at the “Periphery” and then begin gravitating toward the “Core.” 

It’s the weakest players at the fringe that get in trouble first – the highly levered with liquidity constraints and vulnerability to any tightening of financial conditions. 

Simply stated, if the weak lose access to new borrowings, they quickly confront serious trouble. 

It’s worth adding that the global “Periphery” had been on the receiving end of massive yield-chasing speculative flows since the start of pandemic stimulus, leaving it acutely vulnerable to a shift to “risk off” de-risking/deleveraging.

November 18 – Bloomberg (Burhan Yuksekkas and Tugce Ozsoy): 

“The Turkish lira tumbled to a record low after the central bank cut borrowing costs for a third straight month, a move that risks further undermining price stability while eroding what little confidence investors had in the nation’s policy makers. 

The lira fell as much as 6% to 11.3118 against the dollar, the biggest decline in eight months. 

Officials cut the one-week repo rate by 100 bps to 15%…, and said they would consider ending the easing cycle next month. It comes as consumer inflation accelerated to almost 20% in October…”

This week’s 11.3% drop pushed Turkish lira year-to-date losses to 34%. 

Turkish inflation, already above 20%, will surely accelerate. 

Turkey runs large trade and current account deficits. 

It carries a significant debt load, too much of it denominated in the U.S. dollar and other foreign currencies. 

Turkey has $125 billion of foreign-denominated debt due over the next year, about 43% denominated in dollars. 

Between persistent trade deficits and debt maturities, Turkey faces quite challenging external financing requirements. 

The country has $87 billion of international reserves, although the central bank (and banking system) has accumulated offsetting currency forward positions. 

Turkish banks have significant foreign liabilities and derivatives exposures.

Turkish local-currency bond yields jumped 60 bps this week to 19.31%, up about 300 bps in two months. 

Dollar-denominated yields rose 34 bps this week to 6.94%. 

Turkey's sovereign CDS jumped 38 to 446 bps, up from about 300 bps to start the year.

Is it even possible for a crisis to develop with Trillions of liquidity slushing around the global system? 

With ongoing QE from the Fed, ECB, BOE, BOJ and others, few have contemplated waning liquidity or the possibility of a liquidity shock. 

But with Turkey now succumbing to Crisis Dynamics, “risk off” de-risking/deleveraging and contagion have become a clear and present risk.

Brazil’s real declined 2.5% this week, boosting 2021 losses to 7.1%. 

Brazil’s local-currency bond yields rose 22 bps this week to 11.69%. 

Brazil's sovereign CDS gained two to 238 bps, up 60 bps in two months and almost 100 bps from the start of the year. 

At 10.7%, Brazil’s y-o-y inflation hasn’t been higher since the dark days of 2003. 

While Brazil’s external financing requirements don’t appear as precarious as Turkey’s, it has a limited international reserve position, extensive central bank currency derivative positions, and a banking system vulnerable to a surge of “hot money” outflows.

Analysts will cite “idiosyncratic risks.” 

With a pivotal presidential election Sunday, the Chilean peso dropped another 3.5% this week (down 14.2% y-t-d). 

Chile CDS jumped 22 this week to 90 bps (highs since May 2020). 

Despite raising rates to 3.75%, South Africa’s rand fell 2.7% (down 6.6% y-t-d). 

South African yields jumped 15 bps to 9.97%.

Eastern Europe was this week in “risk off” crosshairs. 

Hit by Covid and a crisis at its border with Belarus, Poland’s zloty slumped another 2.6% this week (down 10.3% y-t-d). At 6.8%, y-o-y inflation is the highest since 2000. 

Poland’s local-currency bond yields surged 33 bps this week to 3.23% (after ending Sept. at 2.21%).

Russia’s ruble declined 0.8%, with 10-year yields jumping 18 bps to 8.34% - a two-month rise of 130 bps, as yields surpass the March 2020 spike to reach the highest level since April 2019. 

Ukrainian CDS surged 39 (two-week gain of 76) to 488 bps, the high since 2019. Hungary’s yields jumped 23 bps to a seven-year high of 4.08%. 

The Romanian leu declined 1.4%, with yields up five bps to 5.14% - the high since March 2020. 

The Czech koruna fell 2.1%, and the Bulgarian lev lost 1.4%.

In the “Periphery of the Periphery,” Tunisia CDS surged 98 to 934 bps, Ghana 74 to 1,115 bps, Iraq 52 to 631 bps, and Kenya 32 to 444 bps.

The Shanghai Composite gained 0.6%, posting modest back-to-back weekly gains. 

It was another wild week for developer stocks and bonds, with prices towards the end of the week supported by indications Beijing would loosen real estate Credit. 

Basically, things are spiraling out of control, leaving Beijing with no alternative than to attempt to stabilize the situation.

November 15 – Reuters (Liangping Gao and Ryan Woo): 

“China's property woes worsened on all fronts last month, as price falls in both new and resale homes amid deeper contractions in construction starts and investment by developers piled pressure on the sector in a rare confluence of declines. 

The Chinese property market… has slowed sharply since May, with sentiment increasingly shaken by stress in the sector in the wake of a growing liquidity crisis that has engulfed some of the country's biggest and most indebted developers… 

Prices of new homes dropped 0.2% on average last month from September…, the first decline since March 2015. 

In the resale market, prices slumped in all but six of the 70 major cities tracked by the bureau… 

During the month, homes sales tumbled 22.65% on year to 1.24 trillion yuan…, the fourth straight decline and the lowest this year.”

And from Bloomberg: 

“Property firms refrained from expenditure, resulting in a widening 5.4% year-on-year contraction in real estate development investments, according to Bloomberg calculations. 

New starts by developers, a leading indicator of investments, plunged 33% from a year earlier, and their land purchases shrank 24% from September. 

Projects completed by developers also dwindled 21% from a year prior likely due to hoarding of cash."

November 15 – Bloomberg (Tom Hancock and Enda Curran): 

“China’s economy is slowing to the lows seen way back in 1990 -- a price President Xi Jinping seems willing to pay to reduce its dependence on the property sector. 

Beijing’s squeeze on the real estate sector will linger into next year and beyond, a development many hadn’t seen coming that has now prompted banks like Goldman Sachs…, Nomura… and Barclays Plc to cut their growth forecasts in 2022 to below 5%. 

Bar last year’s pandemic year, that would be the weakest in more than three decades. 

Analysts at Societe Generale SA even attach a 30% probability of a hard landing in 2022.”

November 19 – Bloomberg: 

“China’s economy is slowing more than people think and the outlook is for weaker growth going forward as the government is unlikely to step in with significant stimulus, according to Leland Miller, chief executive officer of China Beige Book. 

‘The third quarter was particularly brutal’ for China’s economy, Miller said… In addition, ‘we’re going to be looking at much lower growth going forward and it’s going to be because the Party is OK with that.’”

It's so early in the process. 

Yet China’s historic apartment Bubble is indeed bursting, with air beginning to seep out of the Chinese Bubble economy. 

Moreover, it’s all unfolding despite huge ongoing Credit growth and low interest rates.

Beijing will direct its banking system to lend, while state-owned companies will borrow, buy and invest. 

I’ll assume these measures will for now keep the wheels from falling off - working to slow the pace of Bubble deflation. 

I empathize with the Chinese people, who must suddenly question whether things are as they had thought – and what the future might hold. 

I would not be surprised to see gloomy sentiment envelop both apartment buyers and shoppers. 

A population that saw expectations inflate as never before is now susceptible to sliding into a deep funk.

But let’s return to the “Periphery vs. Core” analytical framework. 

It’s certainly not abnormal for trouble at the “Periphery” to initially bolster the booming “Core.” 

But it is extraordinary to observe the “Periphery” falter in the face of massive global QE and generally very low bond yields. 

The perceived bulletproof “Core” is oblivious to this ominous development.

Here in the U.S., stocks are six weeks from wrapping up a historic year. 

Virtually all assets have enjoyed spectacular price inflation, while manic markets remain all too willing to disregard risk. 

Attention is focused on Powell or Brainard. 

Will the Fed adjust its taper schedule at its December meeting? 

The first rate increase in the second half of 2022 or not until ’23?

Inflation garners considerable attention, but so long as the Fed and bond market are okay with it, there’s little to worry about. 

China problems are old news. 

Why worry about a Chinese slowdown when our economy is over-heated? 

Besides, if things somehow turn bad enough – in China or with global contagion – the Federal Reserve will surely slow/curtail tapering and indefinitely postpone rate increases. 

Inflation will subside, bond yields will drop - and The Forever Bubble Lives On.

Meanwhile, the “Periphery” is in serious trouble. 

As attention fixates weekly U.S. stock market record highs, global contagion quietly gathers momentum. 

“Risk off” de-risking/deleveraging is broadening and strengthening by the week.

Importantly, liquidity issues are spreading among “Periphery” markets. 

Moreover, the manic “Core” draws precious liquidity from the “Periphery,” in the process toppling “Periphery” Bubbles, while fueling precarious “Terminal Phase” “Core” excess.

Speculative blow-offs ensure liquidity shocks. 

On the upside, speculative leverage – certainly including option and derivatives-related – fuels self-reinforcing liquidity over-abundance. 

But when manic markets inevitably reverse course, it’s selling and deleveraging that becomes self-reinforcing. 

Incredible liquidity abundance can rather abruptly shift to fragility, illiquidity and dislocation.

Prior to QE, market analysts used to fret speculative melt-ups. 

Fretting is appropriate. 

Unparalleled speculative excess today masks a deteriorating global liquidity backdrop. 

Global Crisis Dynamics and contagion are advancing, and they will land at a manic “Core” that I cannot imagine in a more unstable and vulnerable state.

It’s worth noting that U.S. investment-grade and high-yield CDS prices rose this week. 

Corporate Credit spreads jumped to eight-month highs. 

Bank CDS prices increased, while U.S. banks stocks sank 2.7%. 

European bank stocks dropped 2.8%, with Italian banks down 3.9%. 

European CDS prices moved sharply higher. 

Japanese banks fell 2.0%.

Curiously, after trading to a record 3.25% during Tuesday trading, the five-year Treasury “breakeven” inflation rate reversed sharply lower to end the week at 3.04%. 

Crude sank 6%, as economically-sensitive commodities showed some vulnerability. 

And after trading up to 1.65% earlier in the week, 10-year Treasury yields were back down to 1.52% during Friday trading. 

Even in “Core” markets, there were hints of Trouble on the Horizon.

US and China must heed Kissinger’s stark warnings

Cold war strategist says artificial intelligence poses far greater challenge than nuclear weapons

Edward Luce 

Henry Kissinger visits the Summer Palace in Beijing in 1971, when he was head of America’s National Security Council © Bettmann Archive/Getty


As the diplomat who did most to capitalise on the cold war Sino-Soviet split, Henry Kissinger is dismissed by some as a China apologist. 

Yet his alarm at the risks of what is rapidly turning into a second cold war should be taken very seriously. 

The veteran of US-Soviet arms control warns today of “unrestrained competition” between the US and China that has “no precedent in history”.

Instead of negotiating threat reduction, as the US and USSR did after the 1962 Cuban missile crisis, America and China are steadily becoming more ignorant of each other’s capabilities and intentions — the opposite to how the first cold war evolved. 

“The [US-China] relationship has moved from partnership, to co-operation, to uncertainty to near or actual confrontation,” says Kissinger in an interview with the Financial Times. 

“In the absence of dialogue, to expect that wise decisions will be made on all sides is an act of faith in the future that I don’t accept.”

Vladimir Putin, Russia’s president, said that whoever led in artificial intelligence would dominate the world. 

Kissinger, who, with Eric Schmidt, former chief executive of Google, is co-author of a new book, The Age of AI, says we have not yet begun to grasp the impact it is having on future warfare and geopolitical stability. 

The FT recently reported that China had tested a hypersonic missile, which could enable it to evade US missile defence systems. 

The Pentagon this week estimated that China planned to quadruple its nuclear arsenal by 2030. 

Nicolas Chaillan, the former head of AI at the Pentagon, told the FT he had resigned because he could not stand to watch China overtaking the US. 

“It is already over,” he said.

According to Kissinger, the picture could be even worse than that. 

We do not know enough about AI on either side even to determine if China is ahead, or what it could do if it were. 

He likened today to the period before the first world war in which Britain and Germany were so ill-informed about each other’s aims that a seemingly unrelated incident — the assassination of an archduke in south-eastern Europe — triggered what at the time was the bloodiest war in history.

The US and China are showing no appetite to bridge their own gulf of ignorance. 

“We need to learn about these AI capabilities while simultaneously understanding that they produce a level of uncertainty in the world within which permanent peace is very difficult to sustain — probably impossible,” Kissinger said.

He pointed to the contrast between today’s opacity on AI’s strategic impact and the intensive work done on nuclear weapons during the first cold war. 

As a young professor, Kissinger was among a large group of scholars who studied nuclear doctrine. 

Their work eventually fed into arms control treaties in which Moscow and Washington shared details on the accuracy and force of their arsenals.

The US and China are not close to understanding the potency of each other’s AI — and there are no plans to start a formal dialogue, he says. 

The scope for confusion and escalation is thus greater than during most of the cold war. 

Yet the appetite among US scholars to work on it is considerably lower. 

“The philosophical ballast in many societies is evaporating for the kind of dialogue [on nuclear weapons] from which I and my colleagues learned so much,” Kissinger said.

It will be easy for many Americans on the left and right to dismiss Kissinger’s warnings. 

The left cannot forgive him for the Nixon administration’s secret bombing of Cambodia, support for the 1973 overthrow of Salvador Allende’s socialist government in Chile and other covert actions. 

The right views him as untrustworthily dovish on China. 

Yet Kissinger’s analysis should be separated from moral evaluations of his cold war record.

At 98, he is among the few living figures to have played a leading role grappling with the last century’s existential threats. 

Each side eventually acquired an intimate knowledge about their nuclear capacities and doctrines that may be impossible to match on AI, he argues. 

There are no spy planes that could take pictures of China’s AI. 

There is no clear way of deterring attacks, or of knowing where they come from.

“With nuclear weapons it was possible to conceive of principles of deterrence in which there was some symmetry between the damage on each side,” he said. 

“If an unrestrained [US-China] arms race goes from nuclear to AI, the dangers of dramatic escalation would be very great.”

Central Banks Are Fighting Themselves, Not Markets

While it is good news that major Western central banks haven’t yet started raising rates, flip-flopping policy guidance should concern investors

By Jon Sindreu

The Bank of England held interest rates steady on Thursday./ PHOTO: TOM NICHOLSON/REUTERS


The relationship between central banks and financial markets is just like any other: You can’t learn to trust others if you don’t trust yourself.

On Thursday, the Bank of England left interest rates pegged at their all-time low of 0.1%. 

Even though U.K. consumer-price growth hit 3.1% in September, BOE Gov. Andrew Bailey said that “this period of higher inflation is likely to be temporary.” 

This echoed Wednesday’s statements by the Federal Reserve, which also struck a dovish tone despite dialing back bond purchases.

The BOE’s decision caught investors flat-footed. Derivatives called overnight index swaps were pricing in a certainty that U.K. borrowing costs would increase Thursday and would continue aggressively rising in the following months, pushing above 1.2% by 2023. 

Rate setters across emerging markets are already taking action, even as global growth decelerates. 

In Australia, the central bank bowed to pressure from the bond market Tuesday and abandoned its “yield curve control” policy.


Mr. Bailey was right when he said Thursday that “monetary policy can’t increase the supply of gas, it can’t increase the supply of chips, and of course it can’t increase the wind speed.” 

The best solution to inflation caused by bottlenecks is investing in production capacity. 

He also can’t be faulted for pointing out, like Fed Chairman Jerome Powell, that inflation can be high for quite a long time and still count as temporary.

It is good news, then, that the major Western central banks are now edging toward a wait-and-see approach. 

While the labor-market picture is encouraging compared with previous downturns, U.S. participation rates may still take time to recover to pre-Covid levels, and the impact of ending furlough programs in the U.K. remains uncertain. 

In its latest forecasts released Thursday, the BOE said the steep path of interest rates priced in by markets would eventually harm the British economy, with inflation dipping below the 2% target in 2024 due to weak demand.

So did markets get ahead of themselves with inflation fears, and even try to bully central bankers into raising rates prematurely—a pressure that the Fed and the BOE have heroically resisted? 

No, investors repriced their sterling OIS contracts at warp speed between the end of September and mid-October because officials told them to. 

Both Mr. Bailey and BOE rate-setter Michael Saunders expressed unambiguously hawkish views in public appearances.



In fact, the odd shape of the OIS curve, which priced in rates being cut after 2023, suggested that markets saw the BOE’s fast tightening as a mistake that would need to be reversed. 

In more recent statements, BOE officials suggested that they endorsed only the market’s view that rate rises may start soon, not the idea that they would keep going up so quickly after that.

Central-bank guidance matters because financial markets bring forward expected policy moves. 

U.K. financial conditions have already been tightened beyond the 0.15 percentage-point increase that the BOE was expected to deliver Thursday. 

Albeit far less strongly, the Fed has also been humming a more hawkish tune in recent months—causing a small hiccup in markets—and is now backtracking.

Investors can rest easy that rate-setters haven’t yet pulled the trigger prematurely. 

Unpredictable policy guidance, though, creates a risk that the next surprise will be a nastier one. 

American Democracy and Soft Power

As President Joe Biden meets with fellow leaders at COP26, many are asking just how badly US soft power was damaged by Donald Trump's presidency. True, Trump trashed democratic norms that must be restored, but American culture retains great sources of resilience which pessimists often underestimated.

Joseph S. Nye, Jr.



CAMBRIDGE – At a recent meeting of trans-Atlantic foreign policy experts, a European friend told the group that he used to worry about a decline in American hard power, but felt reassured. 

On the other hand, he now worried more about what was happening internally and how that would affect the soft power that underlies American foreign policy. 

Are his fears justified?

Smart political leaders have long understood that values can create power. 

If I can attract you and persuade you to want what I want, then I do not have to force you or pay you to do what I want. 

If the United States (or any country) represents values that others find attractive, it can economize on sticks and carrots. 

US soft power rests partly on American culture and foreign policies when they are attractive to others; but it also rests on our values and how we practice democracy at home.

As international polls show, President Donald Trump’s term in office was not kind to American soft power. 

This was partly a reaction to Trump’s nativist foreign policy, which shunned allies and multilateral institutions, as well as to his administration’s incompetent response to the COVID-19 pandemic. 

But even more damaging to US soft power was Trump’s effort to disrupt the orderly transition of political power after he lost the 2020 election. 

And on January 6, 2021, as Republican Senator Ben Sasse described the invasion of the US Capitol, “the world’s greatest symbol of self-government was ransacked while the leader of the free world cowered behind his keyboard tweeting against his Vice President for fulfilling the duties of his oath to the Constitution.”

America’s allies and other countries were shocked, and America’s attractiveness was diminished. 

Can US soft power recover?

It would not be the first time. 

The US has serious problems, but it also has a capacity for resilience and reform that has rescued it in the past. 

In the 1960s, America’s legacy of racism fueled major urban riots, and protests against the Vietnam War grew increasingly violent. 

Bombs exploded in universities and government buildings. 

The National Guard killed student protesters at Kent State University. 

We witnessed the assassinations of Martin Luther King, Jr. and two Kennedys. 

Populist demagogues like George Wallace fanned the flames of hate. 

Yet within a decade, Congress enacted a series of political reforms, and the honesty of Gerald Ford, the human rights policies of Jimmy Carter, and the optimism of Ronald Reagan helped restore America’s attractiveness.

Moreover, even when protesters marched through the world’s streets condemning American policies in Vietnam, they were more likely to sing “We Shall Overcome” than the “Internationale.” 

The anthem of the civil rights movement illustrated that America’s power to attract rested not on its government’s policy but in large part on its civil society and its capacity for self-criticism and reform.

Unlike hard-power assets (such as armed forces), many soft-power resources are separate from the government and attract others despite politics. 

Hollywood movies and popular music showcasing independent women or empowered minorities can attract others. 

So, too, does America’s diverse and free press, the charitable work of its foundations, and the freedom of inquiry at its universities. 

America’s firms, universities, foundations, churches, and protest movements develop soft power of their own, which may reinforce others’ views of the country.

But while peaceful protests can generate soft power, the mob in and around the Capitol on January 6 was far from peaceful. 

The events of that day were a disturbing illustration of the way that Trump exacerbated political polarization, which he continues to do by making his myth of a stolen election a litmus test in the Republican Party.

To be sure, the US had experienced an increase in political polarization well before Trump was elected in 2016. 

Trump’s innovation was to exploit and exacerbate nativist populism as a political weapon to take control of the GOP, cowing congressional Republicans with threats of a primary challenge from his supporters. 

Many still are too scared to oppose his lies about the 2020 election. 

Fortunately, in a federal system, many state officials and legislators stood up to Trump’s efforts to intimidate them into “finding” votes. 

Some pessimists worry whether this can continue.

For those who are mourning the demise of American democracy, it is important to remember that unprecedented turnout in the 2020 election unseated a demagogue. 

And the outcome was upheld in more than 60 court cases overseen by an independent judiciary, including some of Trump’s appointees. 

And the outcome was finally certified by Congress.

This does not mean that all is well with American democracy. 

The Trump presidency eroded a range of democratic norms. 

Polarization persists, and most Republicans believe his lies about the election. 

Social media business models exacerbate the existing polarization by relying on algorithms that profit from eliciting user “engagement,” and companies like Facebook and Google, under pressure from public opinion and Congressional hearings, are only slowly beginning to respond.

At the same time, American culture still has sources of resilience that pessimists in the past have underestimated. 

Press freedom, independent courts, and the right to peaceful protest are among the greatest sources of America’s soft power. 

Even when mistaken government policies reduce America’s attractiveness, its capacity for self-reflection and self-correction makes it attractive to others at a deeper level. 

As I told my skeptical European friend, values change with generations, and the younger generation is a source of hope.


Joseph S. Nye, Jr. is a professor at Harvard University and author of Do Morals Matter? Presidents and Foreign Policy from FDR to Trump.