The John Batchelor Show

Wednesday 3 January 2018

Air Date: 
January 03, 2018

Co-hosts Gordon Chang, 
Hour One
Wednesday  3 January 2018 / Hour 1, Block A:  Arthur Waldron, Lauder Professor of International Relations in the Department of History at the University of Pennsylvania, in re: What he calls "feral xenophobia."  Xi Jinping claims Chinese leadership of the entire world; also launches a genuine war on Santa Claus.
Wednesday  3 January 2018 / Hour 1, Block B: Anne Stevenson-Yang, co-founder of J Capital Research in Beijing and author of China Alone: The Emergence from, and Potential Return to Isolation, in re: Her recent report on dangers lurking in the Chinese financial system. The fragile Chinese economy has rendered the central bankers in fact terrified of the American Fed. 
China’s financial system is too tightly wound to allow for any missteps
At the Precipice

The Chinese economy might be likened to an elaborate Victorian mansion built of hammered bronze but resting on wooden stilts anchored in the sand. Economic governance must constantly strike a yin-yang balance between the heroic construction of these visible structures and anxious shoring up of the thin pegs supporting them. The shoring-up chapter has opened. Now, as the national Economic Work Conference continues, regulators are deciding whether or not they dare continue their avowed policy of tightening credit.  
   The 2015-16 stimulus—more than RMB 10 trn that went straight from policy banks to local governments—achieved its goal of underwriting impressive capital construction through the first half of 2017.
   The capital swelled land prices that supported local government revenues and collateral values alike, raising paper profits. Now regulators are tasked with mopping up the dangerous asset inflation and coping with penury at the lowest level of government.  That means we are in a tightening cycle. Interest rates will rise, higher taxes will be imposed, capital injections to mid-tier banks will be undertaken, new rules will curtail issuance of financial derivatives, and stimulus will be avoided. That sets up a very dangerous situation for 2018.
    ---- Anne Stevenson-Yang, co-founder of J Capital Research in Beijing and author of China Alone: The Emergence from, and Potential Return to Isolation
‣ Imminent danger to the financial system: China’s usual end-of-year liquidity problems are coming at a time when many in the group of private financial aggregators, like HNA Group and Dalian Wanda, are obtaining emergency cash infusions to forestall defaults.
‣ Less ability to whack the moles: Concentration of bureaucratic authority impairs information flow and may make regulators slower to react. That reaction function will be tested by new policies that could reduce debt securitization by trillions in 2018 and lead to widespread distress.
‣ Real estate at Weimar levels: Properties in central Beijing have posted prices as high as
USD 4,000 per square foot, but the market is not transacting. The government wants the market frozen, but locking up money in property has its own negative consequences.
‣ Kicking out the migrants betrays fiscal distress: A raft of articles lately betrays concern that social security funds are bankrupt and local governments cannot pay for basic services. Part of the reason Beijing and Shanghai are expelling non-permanent residents is to save on fiscal expenditure and to focus on the residents who offer a higher tax yield. That is bad news for the small cities.
Wednesday  3 January 2018 / Hour 1, Block C:
Wednesday  3 January 2018 / Hour 1, Block D:  Michael Ledeen, FDD, in re: Iran.   One of he chants in the 21 cities of uprising; “Don't talk to us about Gaza.  Talk to us about us.”  It's a failed regime. The people know it, want to be rid of it, don't want foreign adventures. Not just food – a terrible water crisis in Iran.  To Iranian people, the two darkest forces in the world are the CIA and the queen of England. When the US president, the VP, the National Security Advisor, and a handful of other American officials proclaim their endorsement of the Iranian uprising, that’s important to Iranians.   Eighty million people: that’s beyond the regime.  Turkish press says that Khamenei’s family has fled to Turkey. No confirmation.  Qassem Soleimani [Army of the Guardians of the Islamic Revolution {IRGC} and since 1998 commander of its Quds Force, a division primarily responsible for extraterritorial military and clandestine operations] has not been seen or heard from for the last days. Where is he?  Khamenei is ambivalent about Soleimani, who might try to take over.  Mogherini (EU) says that the uprising is a consequence of Trump failing to lift the sanctions fast enough. [Whew.]   John Brennan said the US has lost a wonderful opportunity to “strengthen the moderates.”  Egad!
Hour Two
Wednesday  3 January 2018 / Hour 2, Block A:  Bob Collins, 37-year veteran adviser to the Department of Defense and author of the just-released Pyongyang Republic: North Korea's Capital of Human Rights Denial, in re: the latest North Korea news.  How big is your "button"? . . . Will Pres Moon give money to Kim Jong-eun?  Probably will enable civil organizations from the south to flood the north with money, which is only the beginning of Kim’s demands. . . . Kim has to force the Republic of Korea and the US to meet his requirements, and to do so will have to “go kinetic” – e.g., shoot missiles into, for example, the Yellow Sea.  He and his cohort are good at “deliberate planning” – anticipating multiple outcomes; however, not good at crisis planning, which renders them more susceptible to surprise and emergency than we are. When Ceaucescu fell in Romania, Kim Jong-il took it seriously and made changes in his relationship with the population.   China also is threatened by events in Iran today.
Wednesday  3 January 2018 / Hour 2, Block B:  Jim Holmes, first holder of the Admiral Wylie Chair of Maritime Strategy at the Naval War College, in re: Admiral Wylie*, who revolutionized how the Navy fights in wartime; who set up the first Combat Information Center.  Guadalcanal.
* Rear Admiral Joseph Caldwell Wylie, Jr., USN, (March 3, 1911 – January 29, 1993) (called "J. C." Wylie or "Bill" Wylie), was an American strategic theorist, author, and US Naval officer. Wylie is best known for writing Military Strategy: A General Theory of Power Control.
Wednesday  3 January 2018 / Hour 2, Block C:  Captain Jerry Hendrix, USN [ret] and CNAS;  also NRO; in re: Taiwan.  A Chinese diplo in DC threatened the US over Taiwan: If the US Navy ever made a port call on Taiwan, that would be an act of war. The dip’s statement clearly was an overreaction, and totally out of line, esp since he made this bellicose threat in Washington, and he shd be declared persona non grata. I suggest we send the Ronald Reagan strike group, currently in Japan, southward to visit Taiwan, probably Kaohsiung, with cruisers set up all around to look in to China; then continue on to another nation.   . . . We have alliances with fifty nations; much of US power rests with these alliances.  Japan and ROK said to be acquiring the F35B [STOL]  Does this challenge China? Yes.   Also can operate on expeditionary airfields. Fifth-gen stealth aircraft. Japan is doing this simply because of China’s aggression and Japan’s need to be able to defend itself.   As China sees these aircraft proliferate in the region, Xi must feel  more alarm and despair, as he did not anticipate American and regional resolve against Chinese bullying.  Also is confused by Pres Trump’s unexpected strength [as contrasted to the previous two presidents].  When the next war happens, Taiwan is going to be important geography in that war; we need to strengthen them.  
Wednesday  3 January 2018 / Hour 2, Block D: Brenda Shaffer, at Georgetown University, Fellow with the Atlantic Council, & University of Haifa; in re: Pasdaran in Iran:  demos started in Mashhad, where most of the population is ethic Turkmen; then spread to Kurdish-populated then Arab- populated areas. And only then to Teheran. Oil prices have been modest; firms tend to hedge in price.  Oil mkt opened on 1 Jan with highest price in two years.  We’re in a tight oil mkt, where demand and supply are close.   WTI (US) [West Texas Intermediate]  and Brent; Iran crisis is having a higher impact on Brent.  Iran probably will pump as much as possible and ignore its commitment to OPEC. Any sabotage on oil pipelines?  Some unverified of Khuzestan damage. In November, the head of the ____ Arab was killed on his doorstep in Amsterdam. Later, huge demonstrations vs the govt when a dust storm created massive ecological damage, which the people blamed on awful practices by the regime.
Hour Three
Wednesday  3 January 2018 / Hour 3, Block A: Monica Crowley, London Center for Policy Research, in re:  Trump’s taunts to Rocket Man (“nuclear button envy”) and his unusual statements are what led Kim to be uncertain if Trump might actually bomb the life out of North Korea,and brought Kim to offer to speak with the South. Meanwhile, US mfrg is the best it’s been since 2004, and many other indices are doing superbly. 
Wednesday  3 January 2018 / Hour 3, Block B: Dr Lara M Brown, George Washington University, in re:  
Wednesday  3 January 2018 / Hour 3, Block C:  Richard Beals, Reuters Breakingviews, in re:  . . . ETFs, cryptocurrencies,  . . . Scanning the skies for a black swan.
Wednesday  3 January 2018 / Hour 3, Block D:  Richard Beals, Reuters Breakingviews, in re: Review of what to watch for in 2018. Trade: watch Beijing and Washington. . .  Pretty good global growth.  New chairman at the Fed: he’s more laisser-faire than recent Fed heads.  . . . Bond vigilantes: govts issued more debt than central banks were buying. Now with more supply than demand, prices can fall.  If yields go up because prices go down, that’s good for the bond vigilantes.   Interest rates still low and growth looks string; just expensive. Apple is a hedge? It’s worth $900 billion, which is the world’s biggest company and astonishing.  If it does collect data, it doesn’t use it; instead, makes its money form hardware, its “ecosystem.   It has just a huge reach over everything from _____ to markets. Amazon.  Washington and Brussels; a new kind of monopoly.  Regulators thinking about how to dal with all this.  All these [digital] firms move their money around to avoid taxes. 
Hour Four
Wednesday  3 January 2018 / Hour 4, Block A: Tyler Rogoway, DefenseOne, in re: R2D2 element in the SR71 Blackbird. Operating in a GPS-guided envt; humans can't use only GPS to follow or track? . . .  Enemies can jam, spoof or even destroy it?  We’ve become too dependent on looking at a screen to see where enemies are.  Inertial systems use gyros and ___, which aren’t active enough over a long distance (they tend to drift).   Astrotracker: it can lock on to the three brightest stars to determine its position within a few hundred feet even at Mach 3! Gray Wolf, DARPA program: a swarm of missiles attack an enemy wall working as a team.  Each missile is cheap. US has no anti-swarm capabilities; not facing that threat today, but it’s coming. Expect swarm and counterswarm technologies in the coming decade.
Wednesday  3 January 2018 / Hour 4, Block B: Tyler Rogoway, DefenseOne, in re:
Wednesday  3 January 2018 / Hour 4, Block C:
Wednesday  3 January 2018 / Hour 4, Block D:  
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