Is China Buying Texas Land?

August 10th, 2022

The issue of Chinese interests buying up Texas land is one of those stories that has been flitting around the edges of my peripheral awareness for a while. Now Robert Montoya, Jessie Conner and Emily Wilkerson of Texas Scorecard has done a handy deep-dive on the subject.

Many Americans assume incorrectly that American soil is reserved for our citizens and businesses.

The sobering fact, however, is that foreign nationals—both individuals and corporations—own a lot of land in America.

Particularly troubling are incursions by the Chinese Communist Party (CCP) absorbing Texas soil for its strategic geopolitical ends.

Texas Scorecard recently launched a four-part investigative series exposing CCP infiltration of our state’s education apparatus. During our months-long investigation on the CCP’s activities, it became clear that education was merely one part of a multi-prong incursion into the United States of America.

The second prong we will explore here is their infiltration of our agricultural land.

There are some who wave a hand at concerns about foreign entities and individuals owning land stateside, dismissing them as conspiratorial or xenophobic. However, a review of adversarial countries’ actions suggests land holdings are strategic and could undermine national and resource security.

Furthermore, concern over CCP ownership of U.S. land isn’t a partisan issue. During our investigation, we found multiple instances of Republicans and Democrats making public statements, authoring legislation, and warning of the national security implications of such ownership of U.S.-based assets.

Snip.

For the past decade, the number of purchases of agricultural resources by foreign actors has dramatically increased across the nation, with Texas being No. 1 according to a review of USDA documents. Currently, at least 4.7 million acres of Texas’ agricultural land is owned by a foreign entity or individual.

What is even more troubling is the intended uses of the land and the actors involved in development.

In theory, the U.S. federal government should be keeping track of foreign agricultural land ownership. But time and again, it’s not until the last moment that disclosures are made and concerns are publicly raised. Texas Scorecard’s research on these holdings shows that on more than one occasion, foreign acquisitions that should have been stopped immediately were allowed to progress and only ultimately stymied with great effort.

Overview of the widely ignored Agricultural Foreign Investment Disclosure Act (AFIDA) snipped.

For instance, take China’s land holdings overall. 2020 figures from the USDA put total foreign-owned agricultural land holdings for China at 352,140 acres, up from 191,652 acres in the prior years report. Because of high-profile purchases starting in 2015, a single company owned up to 140,000 acres in South Texas alone.

Instead of comprehensive reporting from the USDA or state agricultural departments, Americans are left with what amounts to—at best—a (self-reported) guess and a steady stream of stories about foreign entanglements that spring up from time to time.

Also, it’s a poorly guarded secret that foreign land ownership is hidden.

One way some foreign farmland owners circumvent disclosure or state-level laws barring foreign ownership of farmland is shifting property into majority U.S.-owned subsidiaries—not to mention that land holdings by foreign owners are often a moving target. For instance, a particular parcel’s inclusion as foreign-owned land can fluctuate annually if it’s owned by a publicly traded corporation. The threshold of stock ownership is relatively low at 10 percent.

This is the national component of foreign land ownership and the limits of what we can know at that level.

When it comes to Texas, the state does not prohibit the ownership of agricultural land by foreign individuals or entities. There are multiple states that have total bans, while others at least have limits.

While this complacency has been the status quo for the better part of the past two decades, lawmakers appear to be more proactive about keeping tabs on foreign actors.

Global supply chain disruptions in 2020 due to the Chinese coronavirus, followed quickly by the war in Ukraine and growing tensions between the U.S. and China over Taiwan, have lawmakers critically examining foreign infiltrations at home.

A recently concluded comment period on AFIDA disclosed that foreign interest required to make disclosures increased by 2,250, as more foreign persons acquired or transferred an interest in U.S. agricultural land than in prior years and must comply with AFIDA reporting requirements.

According to the latest AFIDA annual report, foreign holdings of U.S. agricultural land increased modestly from 2009 through 2015, increasing by an average of 0.8 million per year. Since 2015, foreign holdings have increased by an average of nearly 2.2 million acres, ranging from 0.8 million acres to 3.3 million acres per year.

Of this increase, most of the purchases are of forest, crop, and pasture lands. Changes in crop and pasture land are “due to foreign-owned wind companies signing, as well as terminating, long-term leases on a large number of acres.”

Indeed, the largest wind farm in the state of Texas, the Roscoe Wind Farm outside of Abilene, is owned by RWE, a German multinational corporation. The project spans multiple counties and sits atop leased farmland.

While the American public’s attention has been seemingly fixated on Russia since 2016, the CCP’s activities in the U.S. are just as troubling, if not more. Their ruthless oppression of Chinese citizens, hostile stance towards America, and methodical plan for domination all touch the issue of agricultural land ownership in the U.S. and Texas.

The latest available data from the USDA reported China holding just 352,140 acres of agricultural land, which is slightly less than 1 percent of foreign-held acres. But, as is the case with foreign funds flowing to higher education, the tracking of these transactions is imperfect.

It’s likely that China’s ownership of land in the U.S. is understated in USDA’s annual reports.

They describe the “Blue Hill Fiasco”:

Beginning in 2015, Sun Guangxin, a Chinese billionaire, began acquiring land to develop a wind turbine farm in South Texas. Eventually, Guangxin snatched up around 140,000 acres in Val Verde, roughly 7 percent of all land in the county.

In 2019, five years after acquisitions began, the proposed development of a wind farm on the land led to an uproar in Texas and at the national level.

A member of the People’s Liberation Army, Guangxin reportedly built his fortune by establishing close ties to Communist party officials, and leveraged these connections to cheaply acquire and redevelop government property to become a real estate tycoon.

Wang Lequan, who was re-elected as secretary of the Xinjiang Party Committee of the Communist Party of China for three consecutive terms since 1995, is the backer behind Guangxin; the forces behind Wang Lequan are Zhou Yongkang and former President of China Jiang Zemin. Supported by Wang Lequan, Sun Guangxin, chairman of the board of directors of Guanghui Group, is one of the few private oil field owners in China.

His base of operations in China deserves special attention too.

The Xinjiang province is where the widely reported oppression of the Uyghur population is taking place. In part, the Uyghur population is used as forced labor. According to Irina Bukharin, two of the goods produced in this region, in disproportionately high figures, include polysilicon (used in solar panels) and wind turbines.

Sun’s plans for the wind farm in South Texas were covered by state and national media outlets. A billionaire, Guangxin is the chairman of Xinjiang Guanghui Industry Investment, which is the parent company of GH America, the company spearheading the wind farm project.

But there’s more to this story.

“The acquisition by General Sun out near Del Rio was done by them forming a Delaware Corp called GH America,” J. Kyle Bass, chief investment officer of Hayman Capital and founding member of the Committee on the Present Danger: China, told Texas Scorecard. “They funded the Delaware Corp with dollars from a CCP-owned institution in America. You basically had a U.S. corporation, funded with U.S. dollars, buying U.S. property. It was really difficult to understand who the actual owner was and what kind of sovereignty was represented there.”

GH America also positioned itself to influence the legislative process. According to Texas Ethics Commission records, Stephen Lindsey is registered to lobby for the company. He’s widely reported as the vice president of government and regulatory affairs for GH America. According to Transparency USA, from January to September 2021, during the regular and special state legislative sessions that year, Lindsey’s contract was anywhere from $93,150 to more than $186,000.

There’s also a national security risk. Sun’s planned wind farm at Blue Hill was not far (70 miles) from Laughlin Air Force Base. This proximity alarmed many. There are also liquified natural gas deposits in the area.

Bass says the CCP’s aim here is surveillance.

“Basically, they call it ‘over the horizon’ mapping. If you get the point higher and higher, you can map more and more, i.e. you can increase the linear distance that you can map,” he explained. “With their new ability … they can map things within one inch of specificity and clarity of things that are 50 miles away from 700 feet. What’s interesting about that is Laughlin Air Force Base is 30 miles away, and the restricted airspace is 10 miles away from the main ranch.”

Texas Agriculture Commissioner Sid Miller told Texas Scorecard the CCP bought farm land near another Air Force base in North Dakota. “We don’t need to give them listening capabilities to our aircraft coming in out of those [military installations] and other communications coming out,” he said. “It’s crazy enough just to allow our biggest enemy to be purchasing our own soil.”

Bass discussed how the South Texas purchase was allowed to take place. “Steve Mnuchin at [U.S.] Treasury gave a quick Friday-night special OFAC [Office of Foreign Assets] approval without [U.S. Dept. of Defense] being in the room, which is pretty crazy,” he said. “If Treasury is the nexus of [the Committee on Foreign Investment in the United States], and all of the other departments chime in when they can, there should not be an ability for a unilateral approval or approval by the U.S. Treasury secretary, who might be corrupted by the Chinese government.”

When asked, Bass said we don’t know how much land the CCP or its connected entities have in Texas. He explained the Lone Star Infrastructure Protection Act (Texas Senate Bill 2116 passed in 2021), “encouraged” the U.S. Dept. of Defense to assign task forces to examine CCP land holdings near DOD installations. “I know they found some more in Texas, but I don’t know how much more.”

Sen. Ted Cruz (R–TX) was a vocal opponent of the Blue Hills wind farm development, issuing a letter in 2020 to then-Treasury Secretary Mnuchin seeking a private briefing on the project. The junior senator from Texas also proposed legislation that would trigger the review of wind projects within a certain distance of a military installation.

This isn’t the first time a Chinese company has tried to install a wind farm near a U.S. military installation.

In 2012, Ralls, an American company owned by two Chinese nationals, purchased multiple American-owned wind farm companies with several project sites. Four of these sites were within restricted U.S. Navy airspace in the Pacific Northwest.

This part of the purchase raised national security concerns, and Ralls was told to divest and destroy the cement pads they’d poured for construction of its mills near the base. The company sued the government and, troublingly, was successful at first.

Eventually, the company was defeated in its efforts and had to divest. The fact that this episode did not dissuade future attempts speaks to the persistence of the CCP to take part in the production of energy stateside.

There is also a connection between Ralls and Texas. The blades spinning at many wind farm sites in Texas are produced by SANY, the parent company of Ralls, which is owned by the richest man in mainland China, Liang Wengen.

According to a Forbes profile, Wengen worked as a top manager at a state arms plant before getting into heavy construction equipment. He joined the ruling elite in 2011, becoming a member of the CCP.

At the very least, Chinese nationals and the corporations owned by them should have to abide by the same limits China itself places on foreign ownership of land in China. Fundamentally, foreigners cannot own land in China without actually living there, and are further limited to one property per location. Plus there are a wide number of complex rules on foreign ownership of Chinese businesses.

It seems, at the very least, that a survey of land within 10 miles of military bases in Texas to determine if any have hostile foreign ownership may be in order…

Russian Airbase In Crimea Goes Boom

August 9th, 2022

Multiple loud explosions have rocked a Russian military airfield in occupied Crimea:

Evidently the explosions shattered windows for a kilometer around.

Russian military assets blowing up in Ukraine isn’t news, especially now that they’ve fielded HIMARS. What is news is these strikes are a good 200 kilometers from the front line.

As images of large explosions in Russian-occupied Crimea flashed across social media, the Russian Ministry of Defense on Tuesday claimed they were the result of “several aviation munitions destroyed” at the Russian Navy’s Saki Air Base near the village of Novofedorivka.

The incident occured [sic] about 3:20 p.m. local time, according to an official Ministry of Defense (MOD) statement.

Snip.

A senior Ukrainian military official with knowledge of the situation told The New York Times that Ukrainian forces were behind the explosion.

“This was an air base from which planes regularly took off for attacks against our forces in the southern theater,” the official said, speaking on the condition of anonymity to discuss sensitive military matters. The official would not tell the Times what type of weapon used in the attack, saying only that “a device exclusively of Ukrainian manufacture was used.”

A top Crimean official earlier on Tuesday confirmed there were several explosions in Novofedorivka.

“So far, I can only confirm the very fact of several explosions in the Novofedorivka area. I ask everyone to wait for official messages and not to produce versions. Oleg Kryuchkov, adviser to the head of Crimea, said on Tuesday on his Telegram channel.

Viktoria Kazmirova, deputy head of the administration of the Saki district, also reported explosions at the airfield, according to Russian state-run media outlet TASS.

“Our airfield is exploding. Explosions at the airfield. Here all the windows were broken,” Kazmirova said.

The regional health ministry “reported that ambulances and medical aviation were sent to the site of the explosions, information about the victims is being specified.”

Saki Air Base, which Russia occupied when it took over Crimea in 2014, is home to the Russian Navy’s 43rd Independent Naval Attack Aviation Regiment (43 OMShAP). This regiment flies 12 Su-30SMs, six Su-24Ms, and six Su-24MRs, and came to prominence during several encounters with NATO forces in the Black Sea in 2021.

U.S. officials have told The War Zone in the recent past that targets in Crimea are fair game for Ukrainian forces using advanced U.S. weapons. The U.S. sees Crimea as illegally occupied by Russia and no different than the territory it holds in eastern Ukraine. As such, all military targets are fair game, as well as critical infrastructure it relies on to keep its war machine and occupation efforts running.

While some Ukrainian officials claim their military carried out an attack on the base, it is not unheard of for major accidents at Russian ammunition supply depots to occur, although the chances of that being the case are relatively slim in this instance.

However, Novofedorovka is about 124 miles (200 kilometers) from the front lines.

The Saki Air Base seems to be well beyond the range of Ukraine’s long-range fires.

Ukraine has 16 M142 High Mobility Artillery Rocket Systems, or HIMARS, provided by the U.S. as well as three M270 systems provided by the United Kingdom.

Both can fire a variety of 227mm rockets, including Guided Multiple Launch Rocket System (GMLRS) types made by Lockheed Martin, as well as the Army Tactical Missile System (ATACMS) short-range ballistic missiles. So far, the U.S. has only provided Ukraine with an unpublicized amount of M31 rockets with 200-pound class unitary warheads, which are GPS/INS guided and can hit targets at a distance of around 43 miles (70 kilometers.) The Biden administration is reluctant to provide longer-range and harder-hitting ATACMS out of concern that it might rile the Russians. In particular, it could provide a means for Ukraine to execute precision strikes on a large variety of targets well into Russia.

200km is well beyond the range of the missiles we’ve publicly given Ukraine (and of the UK-supplied MLRS system, but within the range of the ATACMS missiles we haven’t announced we’re supplying.

It’s possible this was a long-range drone strike, as 200km is well within the range of the Turkish TB2 Bayraktar drones that Ukraine is known to possess. It’s also possible that Ukraine has developed their own long-range missile system. After all, Germany had V1s and V2s that could attacked at that range all the way back in 1944. And it’s also possible that this was a ship-launched attached fired from closer in.

Whatever the actual weapon used, there seem to be very few locations in Russian-occupied Ukraine safe from further such attacks.

Harris County Really Doesn’t Want Vote Audits

August 8th, 2022

The possibility of having votes audited sent Harris County’s Democratic executives into a preemptive panic.

Harris County Commissioners Court voted 3 to 2 along party lines this week to mount a legal challenge to a state-planned audit of county-run elections over the past two years.

“There’s no reason for a politicized and politically motivated election audit especially after democracy nearly crumbled over this pandering,” said County Judge Lina Hidalgo, who equated the audit to the January 6 riot in Washington D.C.

“Politicized and politically motivated” means “we can’t let Republicans catch us cheating.” Remember, this is the county where the voting administrator had to resign over a horribly botched March primary this year.

Last week, the Texas Secretary of State’s (SOS) office announced the random selection of four counties for an audit of all elections from the 2020 general election through the 2022 general election, including all primaries. Senate Bill (SB) 1, the state’s new election overhaul law passed last year, mandates audits of two counties with populations fewer than 300,000 and two with populations greater than 300,000, selected at random.

Although the Office of the Secretary of State posted a video of employees drawing the names of counties to be audited from a bucket, County Attorney Christian Menefee told commissioners he found the drawing suspicious. He said the video looked like “a sketch comedy show,” and complained that the SOS had neither posted rules for how the counties would be selected nor notified counties ahead of time.

“Had we known this was going on, we would have had somebody there to ensure there was transparency in the process,” said Menefee.

You have to have a lot of damn gall to complain about “transparency” after being accused of turnings security cameras off.

Prior SB 1, in September 2021, the secretary of state’s office announced it would launch audits of the state’s two largest Democratic and two largest Republican counties — Dallas, Harris, Tarrant, and Collin — for the 2020 election as permitted under law. The commissioners court voted 3 to 2 to legally contest that audit at the time but took no action.

Those 2020 audits are still underway, but earlier this year, the secretary of state’s office published a progress report indicating Harris County’s voter rolls included 3,063 potentially non-citizen voters.

Judging from the shenanigans pulled in the 2020 Presidential election, illegal alien voting fraud is probably only the tip of the iceberg…

Ukraine Export Deal: Too Little, Too Late

August 7th, 2022

You may remember Peter Zeihan’s analysis of world agricultural output in the wake of of deglobalization and the Russo-Ukrainian War, and his forecast of famine late this year.

That was just before the Ukraine export deal was signed. Now he’s looked at the facts and run the numbers, and says it isn’t going to help much.

Takeaways:

  • “Right now the Ukrainians have about 18 million metric tons stored up in their silos at or adjacent to their ports. That’s a lot that needs to move. That is in excess of half of a normal harvest for the country.”
  • “On August 1st we got our first ship, the Razoni, to dock to load up and to leave for Lebanon. It’s carrying 26,000 metric tons. So we need 700 more ships of this size if we’re going to get that grain out.”
  • “The Ukrainian harvest starts in less than 45 days. So you’re talking about needing to get a dozen or so vessels in there every single day. So far we’ve had one. I don’t have a lot of hope for this.” (Note: Since then we’ve had four more.)
  • “Right now the Ukrainians have nowhere to put it. Their silos are full from last year’s harvest. They weren’t able to export because the war started back in February.
  • “Even if the farmers were able to work their fields and not be molested by Russian troops (and remember we’ve already had mass evacuations from eastern and southern Ukraine) the problem remains that they can’t get fuel into the country. So you’re talking about needing to harvest industrial levels of wheat without industrial equipment.”
  • “The likely end result here is that this is the last year that Ukraine participates in international grain markets. They simply don’t have the capacity to get stuff up at a scale. In fact the only place that they might be able to ship stuff is by rail and at most with significant upgrades that have not yet been done. They can probably only ship about one-fifth of their normal produce out that way the rail lines are just not designed for that kind of bulk cargo.”
  • Why not? Well, the biggest problem is Ukraine has a different rail gauge from the rest of Europe, another Soviet legacy.

    Bottlenecks have arisen due to the different rail gauge used in Ukraine, dating back to the Soviet era. That means shipments are being transferred to new wagons at the border.

    Ukrainian Infrastructure Minister Oleksandr Kubrakov has targeted the upgrading of rail infrastructure in western Ukraine as a priority the EU should focus on. “Rail transport can partially undertake all the transportation of agricultural products, particularly grain,” he said. “However, transporting goods is difficult due to western Ukraine’s low border-crossing capacity, which is not designed for transshipping such volumes.”

    “Some 768,300 metric tons of Ukrainian grain was exported by rail between May 1 and May 16.”

  • Back to Zeihan: “And a lot of them have to transit little territory called Transnistra [in Moldavia], which is under Russian control.”
  • The sobering conclusion:

    You remove the world’s fourth largest wheat exporter from the market and you’re going to look at cascading problems. Not just with food prices and malnutrition, but civil conflict and breakdown, most notably in the Middle East. The last time we had a doubling of global wheat prices, we saw the Arab spring back in 2011. What we’re dealing with is an order of magnitude more complicated and deeper rooted. And to think that we’re only going to have doubling of prices is ridiculously optimistic.

  • Well, it’s a good thing the Middle East isn’t know for having populations full of unstable hotheads looking for an excuse to kill each other at the drop of a hat…

    Top Chinese Chip Executives Arrested

    August 6th, 2022

    Remember Tsinghua Unigroup, a wholly owned business unit of Tsinghua University and itself owner of Yangtze Memory Technologies Co. (YMTC) (Previously mentioned here.) Well, it turns out that a bunch of their top executives just got arrested:

  • The video shows a picture of six semiconductor executives, all of whom have reportedly been arrested:
    • Dia Shijing, co-president of Tsinghua Unigroup
    • Lu Jun, president of Huaxin Investment
    • Zhao Weiguo, chairman of Tsinghua Unigroup
    • Ding Wenwu, president of National IC Industry Investment Fund,
    • Zhang Yadong, president of Tsinghua Unigroup
    • Qi Lian, another co-president of Tsinghua Unigroup

    How a company runs with three presidents I couldn’t tell you. Must be a Chinese thing.

  • “In the past few days, several senior executives of the organization behind the semiconductor industry in Mainland china have been taken away by the CCP Central Commission for Discipline, Inspection and Investigation.” Given my knowledge of communist nomenclature, I strongly suspect that this is not the sort of organization you want to enfold you in their tender mercies.
  • “In 2014, the General Office of China’s Ministry of Industry and Information Technology announced the official establishment of the National Integrated Circuit industry investment Fund Company Limited [ICF], also known as the National Big Fund or big fund.” Probably best to think of them like USA’s SMEATECH, but with a whole lot more opportunities for graft.
  • Together two rounds of government funding added up to 320RMB, or about $47.4 billion, which should have driven additional public/private capital investment of some $240 billion divided up between China’s Ministry of Finance and large central Chinese enterprises, most of which are also owned by the state. Even for the semiconductor industry, that’s a lot of cheddar.
  • By some estimates, $100 billion of that had already been spent by 2021.
  • “The two phases of investment cover all aspects of integrated circuits (ICs), including IC manufacturing IC design, packaging and testing semiconductor materials and equipment, and industry ecological construction.”
  • ICF provides overall direction and management, while Huaxin Investment provides management of the second phase of fund investment.
  • “Eight years have passed, but high-end Chinese chips haven’t yet been produced, and the management of the state level chip industry has collapsed.” Reading between the lines, this means TSMC is still kicking their ass. If that’s the standard, then it’s a bit unfair because every other semiconductor manufacturer in the world is in the same boat.
  • On July 28, Xiao Yaqing, head of MIIT, fell from power. “Xiao was the spearhead of the Chinese communist party’s attempt to build a world-class chip industry, and eliminate its dependence on the US.” He supposedly tried to slit his wrists.
  • “The very next day, Xi Jinping immediately appointed a replacement a longtime aerospace official to take over MIIT.” Yeah, that’s really going to help your semiconductor goals.
  • “On July 15, Lu Jun, former deputy director of the China Development Bank Development Fund Management Department, was investigated Lu Jun was involved in many investment operations of the Big Fund, of which he was the sole manager. He was also former president of Huaxin.
  • Yang Zhengfan, another Huaxin executive, was also taken away.
  • Also arrested: Wang Wenzhong of Hongtai Fund and Gao Songtao, both involved with Huaxin and the Big Fund. And that’s probably not all. Evidently a whole network of semiconductor executives are being rounded up.
  • Dia Shijing of Tsinghua Unigroup was among those reported arrested, but Tsinghua Unigroup is saying “Nah, everything’s good here! Go about your business, citizens!”
  • In July 2021, Tsinghua Unigroup announced that it was overwhelmed by 200 billion RMB of debt and filed for bankruptcy because it couldn’t pay its bonds at maturity. Keep in mind that Tsinghua Unigroup, partially owned by Tsinghua University, is itself owner of YMTC, which is (I think) China’s biggest domestic memory chip manufacturer. Tsinghua/YMTC was previously one of China’s biggest semiconductor manufacturing success stories, second only to SMIC, and supposedly “the largest integrated circuit company in China.” They have actual working fabs up and running. And they’re still evidently a money-losing failure.
  • Tsinghua Unigroup has grown through mergers and acquisitions, buying up over 20 companies. This strategy is not unknown among western companies, as GlobalFoundries and NXP are both the results of a similar strategy. But neither of those companies is on the cutting edge.
  • “Tsinghua Unigroup has been using short-term loans rolling over to create long-term loans. These made the group’s cumulative liabilities too large and its financing structure unbalanced.” Yeah, I bet. “Get big quick” worked for a few doctcom era mega-success stories, but I don’t think it works in semiconductors.
  • Zhao Weiguo once boasted he was going to buy TSMC. Also, I’m going to kick Shaq’s butt in the slam dunk contest just as soon as I take time off from dating all these supermodels.
  • China Development Bank extended Tsinghua Unigroup 100 RMB credit between 2016 and 2020. Still a lot of cheddar.
  • I’m skipping over a whole lot of blow-by-blow “who owns what” in the corporate structure. Imagine if Spectre, the Gotti Family, and the Bank of England all had shares in Amway.
  • “Due to debt, Tsinghua Unigroup abandoned its plan to build DRAM memory chip manufacturing plants in Chongqing and Chengdu in southwest China earlier this year.” I bet that left a lot of pissed-off local commissars holding the bag.
  • “When the chip industry becomes a national strategy, but with no real oversight, it becomes a disaster zone of corruption, and a big cake for those in the circle to get rich for themselves.” True of any industry anywhere, but especially true of China, and especially true of semiconductors, where “fake it until you make it” isn’t an option if you’re actually building fabs.
  • “China cannot make high-end chips to this day.” True.
  • “American chip technology is far ahead of the world.” Also true, though with caveats. For semiconductor manufacturing, TSMC is on the cutting edge, with Intel and Samsung within striking distance. For semiconductor leaders, two American companies (Applied Materials and Lam Research) dominate a fair number of technologies, but Tokyo Electron is competitive in many of them, and ASML dominates the stepper market.
  • Skipping over the bits where China stole US (and other) tech, which should be familiar by now.
  • Enter the Trump Administration, “blacklisting and embargoing more than 600 Chinese high-tech companies and high-end manufacturing companies, as well as universities and research institutions.” Pissing off your biggest trade partner is generally not a great plan.

  • Result: Bottlenecks in China’s supply chains.
  • EDA makes software to design chips, and China has no real substitute.
  • SMIC’s supposed 7nm chip breakthrough (which I’m still skeptical of) reportedly copied TSMC technology.
  • Skipping over the coverage of America’s own ill-advised semiconductor subsidies.
  • Semiconductors are still a big item in China most recent Five-Year Plan (and yes, the Chicoms still use Five Year Plans, just like Mama Stalin used to make).
  • “The outside world has not seen the investment of the Big Fund break any bottleneck. However, the earthquake happening in the industry has directly shown people that there is a deep corruption in the Chinese chip industry.” Why should it be different than any other Chinese industry?
  • And just who is going to step up to those jobs running China’s increasingly-unlikely-to-succeed semiconductor moonshot, given that the last batch got rounded up by the Chinese Inquisition?
  • Interesting bit of history: Previous CCP head Jiang Zemin put his own son Jiang Mianheng in charge of developing China’s semiconductor industry, and also managed to make the country even more corrupt than it already was. And here we are.
  • It’s ironic that just as Washington was passing a giant graft bucket of semiconductor subsidies because China was supposedly kicking our ass, China itself was sacking the very people presiding over China’s own bucket of graft for not catching up to the west. The truth is somewhere between.

    China was never going to catch up to western semiconductors because the gap was too large and you need a crazy swarm of free market capitalist entrepreneurs risking private money to eek out important incremental process tweeks to keep Moore’s Law going. China was never going to have that as long as they suffered under Communist rule. And a huge percentage the government money that was sloshed into semiconductors was indeed swallowed up by graft and diversion of funds. But all that money does appear to have helped China close the gap some. Granted, a lot of that was via systematic IP property theft, but it got them into the game.

    Ultimately it wasn’t nearly enough, just as the prophecy foretold.

    Is China’s semiconductor industry a giant pit of graft, disappointment and failure? Yeah, but probably less than most of the rest of the economy.

    LinkSwarm for August 5, 2022

    August 5th, 2022

    Ron DeSantis drives more enemies before him, the Biden Administration keeps doubling down on tranny madness, Batgirl dies for DC’s sins, and the most “Ewww” inducing headline of the year. It’s the Friday LinkSwarm!
    
    

  • Why America can’t build.

    Construction projects are undertaken within a legal and regulatory system that presents persistent, costly obstacles, while projects are being overseen by agencies who lack the resources and in some cases even the expertise to manage them.

    Sepulveda’s numerous lawsuits and stakeholder conflicts are an example of a phenomenon that can be traced back to the passage of the National Environmental Policy Act (NEPA) in 1969. NEPA mandates developers to provide environmental impact statements before they can obtain the permits necessary for construction on huge swathes of infrastructure.

    Shortly following the passage of NEPA, California’s then-governor Ronald Reagan signed the California Environmental Quality Act (CEQA) into law, which required additional environmental impact analysis. Unlike NEPA, it requires adopting all feasible measures to mitigate these impacts. Interest groups wield CEQA and NEPA like weapons. One study found that 85 percent of CEQA lawsuits were filed by groups with no history of environmental advocacy. The NIMBY attitude of these groups has crippled the ability of California to build anything. As California Governor Gavin Newsom succinctly put it, “NIMBYism is destroying the state.”

    It is also destroying the U.S.’s ability to build nationally. The economist Eli Dourado reported in The New York Times that “per-mile spending on the Interstate System of Highways tripled between the 1960’s and 1980’s.” This directly correlates with the passage of NEPA. If anything, the problem has gotten worse over time. Projects receiving funding through the $837 billion stimulus plan passed by Congress in the aftermath of the financial crises were subject to over 192,000 NEPA reviews.

    The NEPA/CEQA process incentivizes the public agencies to seek what is often termed a “bulletproof” environmental compliance document to head off future legal challenges. This takes time, with the average EIS taking 4.5 years to complete. Some have taken longer than a decade. A cottage industry of consultants is devoted to completing these documents, earning themselves millions in fees.

    The NEPA consultants are just one of the numerous types of consultants that benefit from the way we build. Most infrastructure in the U.S. is built through a huge number of state and local agencies: for example, there are 51,000 community water systems alone in the U.S. This decentralized structure makes it much more difficult to develop the depth of expertise needed to manage the complexities posed by megaprojects. Often, the multiple public agencies that are involved with projects also have overlapping authorities, creating bureaucratic delays and slowing decision making.

    The expertise problem is compounded by the fact that agencies are often staffed with a workforce of people either just at the beginning of their careers or near the end of them. Those at the beginning tend to leave if they are ambitious, which leaves senior positions in the hands of agency lifers. Because of this dynamic, and the fact that it is not economically feasible to have the wide range of expertise needed in-house, public agencies employ engineering consulting firms. These firms fill a valuable niche. If you are building a complex project—say, a long-span bridge or a desalination plant—you want advice from someone who has designed and built dozens of them. The problem arises when you become too dependent on such advice.

    The High-Speed Rail project was undermined by such a failure. At its peak, the agency responsible for the project, the California High-Speed Rail Authority, had fewer than 30 permanent employees managing the $105 billion project. Instead of hiring staff, the Authority relied heavily on outside consultants. These consultants were well paid, with the primary consultant compensation for HSR at $427,000 per engineer, compared with the Authority’s in-house cost of $131,000 per engineer. This structure creates a principal-agent problem where they are incentivized to maximize their billable hours. As a California State Auditor assessment of the project noted, consultants “may not always have the state’s best interest as their primary motivation.”

    This lack of in-house institutional expertise leads to bad decision-making. Bent Flyvbjerg, a professor at Oxford University who has written extensively about megaprojects summarized the problem when asked about California’s HSR project: “If you depend on consultants to know what you are doing then you are in real trouble…a good balance is where the owners are not outsourcing all the knowledge. A bad balance guarantees a bad outcome.”

    The pitfalls of this lack of balance appeared before large parts of the project began. In 2014, Dragados, the contractor for a 63-mile section of the HSR, proposed radical design changes that they projected could save $300 million. The fact that Dragados’s bid was $500 million lower than its competitors and that it rested upon a design concept that had not been thoroughly vetted should have caused alarm. As a senior engineer who worked on the original environmental compliance document for HSR and reviewed the concepts told the Los Angeles Times, “it is mind-boggling they would entertain some of the things that Dragados proposed.”

    Dragados’s approach may have been driven by the fact it didn’t have the experience of its competitors; it had never built a rail project in the U.S. before and needed an edge to be selected. It was a measured risk because it knew there were ways to limit its financial exposure if its design ideas didn’t work. A Los Angeles Times investigation of the project in 2021 found Dragados had issued 273 change orders for additional payment and had completed less than 50 percent of its planned work four years after its section was supposed to be complete. Its design ideas had been almost completely abandoned as unworkable and Dragados’s section of the work was $800 million over budget.

    The principal-agent problem arises with union construction labor as well. Skilled union workers, such as electricians and carpenters, make solid hourly wages, but their pay really explodes with overtime. A 2011 study by the Real Estate Board of New York found that some union crane operators made up to $500,000 a year in pay. Union contracts mandate unnecessary positions as well, to the benefit of its members. The same study found 50 workers in unnecessary positions such as relief crane operators on the World Trade Center Project, including 14 unproductive employees making $400,000 a year at the project.

    Similar statistics can be found on other projects; an investigation into the costs of the East Side Access rail project in New York, which cost nearly $3.5 billion for each new mile of track, found that only 700 of the 900 workers being paid on the project were needed. A TBM, which is largely run automatically and typically staffed with under 10 people, ostensibly had 25 or 26 people working on it. Because you can’t drill without a TBM, and you can’t build a high-rise without a crane operator, these union workers have inordinate power.

    A common retort to the claim that union labor drives up costs is that other countries, especially in Europe, have both high union participation and lower project costs. But it is widely recognized in the industry that unions increase project labor costs by 20 to 25 percent on average in the U.S.

    The fundamental problem isn’t unions per se, but rather the way that unions operate within parts of the U.S. system. The Netherlands has strong unions, but the Port of Rotterdam has been automated to an extent that has proven impossible in the U.S. due to union resistance. As the president of the International Longshoremen’s Association, Harold Dagget, recently put it, his union will “fight tooth and nail” against further automation in the U.S. Any attempt at real construction innovation runs into similar barriers at every level of the system. There are too many layers of permission needed to innovate, including groups whose interests run counter to innovation.

    Innovation in physical work ultimately means substituting or complementing labor through technology to improve productivity. If your pay depends on overtime, you want inefficiency. The average dockworker at the Port of Los Angeles makes over $100,000 a year, largely due to overtime. The majority of foremen and managers earn more than $200,000, and the mariners who guide ships in and out of the port average nearly $450,000.

    The result is that innovation is inhibited by both labor resistance and a decentralized government bureaucracy that has neither the incentives nor the capability of driving real change. Perhaps it should not be shocking that U.S. construction productivity has fallen by half since the 1960s according to research conducted by the consulting firm McKinsey.

    Rent-seeking Uber Alles.

  • Soros slammed for America’s crime wave. Including this handy chart:

    In San Francisco, Soros-funded DA Chesa Boudin has seen a flood of departures from his office due to his criminal justice reform policies.

    Boudin campaigned on a platform to end mass incarceration, eliminate cash bail, and vowed to create a panel to review sentencing and potential wrongful convictions. Following his election in November 2019, Boudin announced he would deemphasize the prosecution of drug cases, so-called quality-of-life cases, and property offenses.

    Under his watch, vehicle break-ins increased 100-750% in parts of the city between 2020 and 2021, with the number of reported vehicle thefts reaching 1,891 in May 2021—more than double the 923 reported in May 2020.

    San Francisco also recorded one of the largest increases in burglaries among major cities last year, with a jump of 47 percent—a trend that has continued this year. Fatal and nonfatal shootings in the first six months of this year were up more than 100 percent from the year-earlier period, increasing to 119 from 58, the city’s police chief said at a July press conference.

    More than 700 people died of drug overdoses in 2021 in the city, a record that is likely to be surpassed this year, according to the chief medical examiner.

    Rudy Giuliani – the former Mayor of New York City whose claim to fame was a massive reduction in crime (and who’s traded barbs with Soros in the past), isn’t letting the billionaire off the hook.

    “If there is one single person responsible for the record increases in murder and violence in America’s cities it’s George Soros,” Giuliani said in a Monday tweet.

    “Major contributor to BLM, Antifa, Democrat Party, Biden, Harris and 40 or so pro Criminal DAs. The blood is on his hands,” he added.

  • Speaking of Soros, a resigning Chicago prosecutor slammed Soros-backed Illinois Attorney General Kim Foxx on his way out the door.

    Assistant State’s Attorney James Murphy described an understaffed office in turmoil in his email to colleagues, saying, “I cannot continue to work for an Administration I no longer respect.”

    “I would love to continue to fight for the victims of crime and to continue to stand with each of you, especially in the face of the overwhelming crime that is crippling our communities,” Murphy wrote. “However, I can no longer work for this Administration. I have zero confidence in their leadership.”

    Murphy, who could not be reached directly for comment, zeroed in on many of the issues that have made Foxx a target of opponents who argue she’s gone easy on some accused of violent crimes, as carjackings and gun violence have risen in the Chicago area.

    Murphy wrote that he first started thinking about leaving the office early in 2021 with Foxx’s involvement in the passage of the SAFE-T Act, a wide-ranging law that aims to reform the state’s approach to criminal justice, including by narrowing the definition of who can be charged with first-degree murder.

  • Florida Governor Ron DeSantis shows he plays for keeps by sending state police to physically remove a guy from his office for refusing to follow the law.

    DeSantis has suspended State Attorney Andrew Warren for ‘picking and choosing which laws to enforce based on his personal agenda,’ and has appointed Susan Lopez as his replacement during the suspension.

    Warren, who had served the Thirteenth Judicial Circuit, has most recently refused to follow state policy criminalizing abortion in the wake of the Supreme Court’s decision to overturn Roe v. Wade – and repeatedly refused to enforce laws cracking down on child sex-change surgeries, according to DeSantis.

    The liberal state attorney also declined to prosecute 67 protesters arrested in George Floyd demonstrations, and said in 2017 that he would only pursue the death penalty “in the very worst cases,” and not where “mental illness played a role.”

    “We are suspending Soros-backed 13th circuit state attorney Andrew Warren for neglecting his duties as he pledges not to uphold the laws of the state,” DeSantis’ office said in a statement, per Fox News.

    Update: DeSantis sent state police to physically remove Warren from his office, “with access only to retrieve his personal belongings, and (ii) to ensure that no files, papers, documents, notes, records, computers, or removable storage media are removed from the Office of the State Attorney…”

  • But that’s not the end of DeSantiss bad-assery this week. He also got PayPal to unfreeze Moms For Liberty’s account.

    PayPal has reportedly unfrozen Moms for Liberty’s account funds after Florida Gov. Ron DeSantis announced his state would crack down on woke banking.

    Payment platform PayPal allowed grassroots, anti-woke education group Moms for Liberty to access its funds after DeSantis’s new initiative against woke banking, Florida’s Voice reported. Moms for Liberty co-founder Tina Descovich reportedly told Florida’s Voice that her organization had been using PayPal for more than a year before the platform censored the group.

    Descovich reportedly said that many Moms for Liberty donors give monthly and automatically through PayPal. The payment processor not only stopped these donor payments but froze $4,500 belonging to Moms for Liberty, and prohibited any transfer of the money out of the account, according to Florida’s Voice. PayPal subsequently reversed its block by unfreezing the funds.

    PayPal notified Descovich that Moms for Liberty’s accounts were initially frozen during DeSantis’s July 15 speech at the Moms for Liberty National Summit, according to Florida’s Voice. The funds were unfrozen after DeSantis announced his initiative against woke banking.

    (Hat tip: Stephen Green at Instapundit.)

  • Biden’s Department of Agriculture is trying to destroy corn farming in America.

    The world is facing serious food and energy shortages as an outgrowth of the war in Ukraine and supply-chain shortages. Farmers are working to solve these problems, but we need help from the federal government if we are going to have any chance of success.

    That’s why national corn grower leaders recently called on the Biden administration to address regulatory overreach.

    That call comes after the U.S. Environmental Protection Agency recently revised its atrazine registration, a move that could restrict access to a critical crop protection tool that has been well tested and shown to be safe for use. Farmers fear that new requirements will impose arduous new restrictions and mitigation measures on the herbicide, limiting how much of the product they use.

    The atrazine decision comes on the heels of a development involving the herbicide glyphosate. In June, the U.S. Supreme Court refused to hear a case decided by a lower court from California, leaving in place a ruling that supports the claim that glyphosate use causes cancer – even as the EPA has repeatedly affirmed that the widely sold and well-studied herbicide is not carcinogenic.

    The Supreme Court’s decision came after the solicitor general in the Biden administration submitted an amicus brief advising the court against hearing the case.

    As a result, the door is now open for states to create a patchwork of regulations governing herbicide use, which will increase costs as manufacturers must now jump through hoops in every state, on top of making compliance difficult for the users of these products.

    Farmers in Iowa and across the country have also experienced major fertilizer price hikes and shortages over the last year, thanks in part to steps taken by the U.S. International Trade Commission to impose tariffs on fertilizers. Thankfully, ITC recently voted against adding tariffs on nitrogen fertilizers. But tariffs on phosphorous fertilizers from Morocco remain in place, driving up input prices for growers.

  • Speaking of foolish regulations that can contribute to famine, new “debarbonization” shipping rules could do just that.

    A new report found that more than 75% of ships will not meet the International Maritime Organization’s (IMO) new Environmental social and corporate governance (ESG) index aimed at decarbonizing the industry. This means that many ship owners will be forced to slow ships down to reduce emissions but doing so could deepen the global food and energy crisis by reducing available ship capacity.

    “IMO decarbonization targets will cause ships to slow down delaying food shipments and people will starve,” a global security analyst told gCaptain. “How many people will die as a result of the IMO’s ESG efforts is unknown at this time. I don’t think most shipowners even understand the severity of the EEXI threat but it could be millions of lives.”

    “Ships have to attain EEXI approval once in a lifetime, by the first periodical survey in 2023 at the latest.” The certification is currently voluntary, but banks and insurers may force ships to comply or be cut off. (Hat tip: Sarah Hoyt at Instapundit.)

  • Hanky panky in government jobs numbers?
  • Things the media doesn’t want to talk about: The leftwing whack-job who tried to assassinate Supreme Court Justice Brett Kavanaugh thinks he’s a woman. Which I guess makes him a slightly different type of leftwing whack-job.
  • Russo-Ukrainian War update: “Ukraine takes out Russian ammunition railway connecting Kherson to Crimea.” I keep seeing rumors of a big Ukranian counteroffensive to retake Kherson, but it seems like it’s slow to make much headway.
  • “Chuck Schumer’s son-in-law lands lucrative gig at private equity giant Blackstone.” Of course he has.
  • The Biden Administration wants to force religious hospitals to embrace tranny madness.

    In 2016, the Obama administration’s Department of Health and Human Services issued a rule that would have forced doctors across the country to assist in transitioning patients out of their biological sex, regardless of a provider’s medical opinion or conscience objections.

    “A provider specializing in gynecological services that previously declined to provide a medically necessary hysterectomy for a transgender man,” for example, “would have to revise its policy to provide the procedure for transgender individuals in the same manner it provides the procedure for other individuals.”

    The rule left no room for religious physicians or institutions to breathe, instead menacing them with draconian fines, were they not to toe the controversial new line.

    In stepped the Becket Fund for Religious Liberty, which swiftly secured a preliminary injunction in federal court that stopped the rule from going into effect, on the grounds that it violated the Administrative Procedure Act, and likely violated the Religious Freedom Restoration Act. It was a decision later confirmed in 2019, and made permanent by a 2021 ruling.

    On August 4, however, Becket attorney Luke Goodrich, who has been working on the case since the Obama-era rule was first issued, will march back into the courtroom, having been dragged back in by the Biden administration and Secretary of Health and Human Services Xavier Becerra.

    “They say that our lawsuit was only about the 2016 rule. . . . They say, ‘well, all you were challenging was the 2016 rule, and you won that, but now we’re using a different rule or a different rationale for imposing the same requirement on you, and so you have to file a new lawsuit,’” explained Goodrich.

    Under the Biden administration’s theory, the Affordable Care Act provides the administration with “all the authority” it needs “to punish groups that don’t perform gender transitions and abortions,” Goodrich told National Review. The 2016 rule also included language that Becket alleges would force religious institutions to perform abortions.

    Remember how Republicans said ObamaCare would endanger religious liberty and the MSM dismissed their concerns? Just like “If you like your doctor, you can keep your doctor.”

    According to Goodrich, “the merits are completely resolved and haven’t been appealed; the fight on appeal is about the scope of relief.” He described an effort to work around a losing legal argument by burdening religious objectors and opening up new fronts of battle.

    “They want religious organizations to have to play Whac-A-Mole every time the government violates the Religious Freedom Restoration Act, and they want a ruling that will leave them free to keep violating religious liberty every time they shuffle the same legal requirement from one volume of the Federal Register to another,” he said.

    That strategy is observable in the proposal of yet another, even broader rule — modeled after the 2016 one — issued by Becerra, who has made his political brand on waging one ruthless culture war after another.

    As attorney general of California, Becerra sought to punish independent journalists who exposed Planned Parenthood’s sale of fetal remains harvested during abortions. The Los Angeles Times editorial board described his decision to charge those involved with felonies “disturbing,” and the progressive Mother Jones called it “chilling.”

    He also happily enforced a plainly unconstitutional California statute requiring pro-life crisis pregnancy centers to provide pro-abortion materials to patrons, and, as a member of the U.S. House of Representatives, voted against legislation that would allow providers not to perform abortions without fear of government reprisal.

  • Has Tranny Madness peaked in the UK? There, the Rugby Football Union and Rugby Football League just banned men from playing women’s rugby. In other news, there’s evidently women’s rugby.
  • More signs of sanity in the UK: “UK Police Chief Says Investigating Offensive Speech Is ‘Waste Of Time.'”
  • “What’s the worst performing stock in the Dow Jones Industrial Average so far this year? Disney.”

    The Mickey Mouse company, headquartered in Burbank, has lost about 35% of its value this year versus a nearly 15% loss for the broader index. As a result, tens of millions of Americans who hold Disney stock either directly or indirectly as part of passive index funds have seen their finances take a hit at the worst possible time as inflation spirals out of control.

    Disney’s poor financial performance is a product of its own making. In recent months, the company has aggressively waded into controversial cultural issues such as gender identity, making it clear it is putting politics over its shareholders and customers. Disney is a prime example of the threat posed to shareholders and the broader economy of “woke” capitalism. Its story should serve as a cautionary tale for other companies looking to follow in its footsteps.

    Disney has all but admitted it’s leveraging its prized position as a top children’s content creator to push a divisive cultural agenda. In March, Disney’s president of content told employees the company plans to have at least 50% of its regular characters come from “underrepresented groups.” Another top producer boasted about Disney’s “not-at-all-secret gay agenda,” including “adding queerness” to children’s programming. Yet another senior executive promised that Disney would implement a “tracker” to ensure programs contain enough “canonical trans characters.”

    We’re getting a look at what this woke agenda looks like in practice. An upcoming episode of Disney’s new children’s show “Baymax!” features a transgender man buying menstrual pads. “I always get the ones with wings,” says the “man” wearing a shirt with the transgender flag. Disney is also abolishing the words “boys” and “girls” at its theme parks.

  • “BLM Activist Shaun King Used Donor Funds To Buy $40k Thoroughbred Show Dog.” That’s infuriating. Not that premagrifter Talcum X siphoned BLM money into his own pockets. That part’s hilarious and predictable. No, that he spent forty grand on a dog when they are so many shelter dogs who need a home.
  • Heads up! It’s a tax-free back-to-school weekend in Texas on clothes and schools supplies under $100.
  • “GEICO closes all California offices, lays off workers.” California regulation just keeps paying dividends…
  • Crazy story: U.S. Bank caught opening fake accounts and credit cards with customer money. Fine are not enough. People need go to jail for this.
  • Amazon flashlight lumen ratings are bunk.
  • A pretty good list of the 95 Best Action Movies Ever. Has all the stuff you would expect to be on there (Die Hard, Hard-Boiled, The French Connection, etc.), plus a good bit of Jackie Chan, Sorcerer, Safety Last, Hot Fuzz, and even Andy Sedaris’ hilarious low-budget breastsplotation “classic” Hard Ticket To Hawaii.
  • Test screens for Batgirl were so bad that DC simply isn’t going to release the film. “They think an unspeakable ‘Batgirl’ is going to be irredeemable.”
  • And, oh yeah, the Critical Drinker is there. “Warner Brothers may be the first domino to fall, but something tells me they won’t be the last. And when other companies realize that you can safely drop THE MESSAGE and the people peddling it…well, the next year or two could turn out to be very interesting.”
  • Charming or terrifying? You make the call.
  • We have a winner for for Most “Eww” Inducing Headline: “Morgue Assistant Uses Testicles From Corpses To Help Win Annual Spaghetti Cook-Off.”
  • “Government That Shut Down Businesses, Parks, Schools, Beaches, And Churches For 2 Years Says There’s Nothing We Can Do To Stop A Disease Spread By Gay Sex.”
  • Why Dutch Farmers Revolt

    August 4th, 2022

    Those who get all their news from the MSM may be unaware that Dutch farmers are staging a revolt against attempts to seize their land and force them out of farming.

    Americans should start paying closer attention to the ongoing farmer protests in the Netherlands, which this week transformed long swaths of Dutch highways into what looked like a post-apocalyptic warzone: roadside fires raging out of control, manure and farming detritus heaped across highways, traffic stalled for miles, and massive protests across the country in support of the farmers.

    Why is the Netherlands, of all places, experiencing such unrest? Americans need to understand what’s happening over there because the ruinous climate policies that triggered these protests are precisely what President Joe Biden and the Democrats have in mind for the United States.

    Specifically, Dutch farmers are protesting a government plan to cut fertilizer use and reduce livestock numbers so drastically that it will force many farms out of business. Earlier this month, farmers used tractors and trucks to block highways and entrances to food distribution centers across the country, saying their livelihood and way of life are being targeted by the government.

    And they more or less are. The ruling coalition government claims its radical plan, pushed by Prime Minister Mark Rutte, who branded the protests “unacceptable,” is part of an “unavoidable transition” to improve air, land, and water quality.

    “Unavoidable” because European elites have decided their virtue signaling transcends the rights of mere peasants to earn a living and feed people.

    The goal is to reduce emissions of nitrogen oxide and ammonia, which are produced by livestock but which the government is labeling “pollutants,” by 50 percent nationwide by the year 2030.

    The only way to do that, many Dutch farmers say, is to slaughter the vast majority of their livestock and shutter their farms. The government knows this and admitted as much earlier this year, saying in a statement, “The honest message … is that not all farmers can continue their business,” and that farmers have three options: “Becoming more sustainable, relocating or ending their business.”

    The genesis of the scheme was a court ruling from 2019 that said the Dutch government’s plan for reducing nitrogen emissions violated EU laws protecting its Natura 2000 network of supposedly vulnerable and endangered plant and animal habitats — basically a bunch of EU-governed wildlife preserves. These sites span the EU, covering 18 percent of the bloc’s land area and 8 percent of its marine territory.

    To protect these wildlife preserves, Dutch farmers are being told they must submit to their government’s ruinous emissions plan.

    But the Natura 2000 preserves are only part of the story. European leaders such as Rutte are environmental ideologues who want to transform global food production and eliminate private land ownership, and he sees an opportunity in this court order to reshape agriculture and land use in the Netherlands.

    Indeed, Rutte — a walking embodiment of the Davos Man if there ever was one — is a big proponent of the United Nations’ “Agenda 2030” and its Sustainable Development Goals, which aim to squeeze farmers and ranchers around the world in order to reduce “emissions.” The policies that flow from these goals, such as drastically reducing the use of fertilizer, contributed to the recent economic collapse of Sri Lanka, which triggered mass protests that toppled Sri Lanka’s government and ousted its president earlier this month.

    Last year, Rutte spoke to the World Economic Forum about “transforming food systems and land use” at Davos Agenda Week, announcing that the Netherlands would host something called the “Global Coordinating Secretariat of the World Economic Food Innovation Hubs,” whose job would be to “connect all other food innovation hubs.”

    In Davos-speak, that means agricultural production and the supply of food will be centrally controlled by intra-governmental bodies and “stakeholders” consisting mainly of the world’s largest food corporations and international NGOs. Private farms and independent farmers will be a thing of the past, supplanted by global bodies making decisions about how much and what kinds of food are produced. The private sector and the independent farmers will have no place in the future that the UN and the WEF are planning.

    Dutch farmers understand this. They know Rutte and his ministers want above all to eradicate their farms and way of life. But they’re not going down without a fight.

    And fighting they are:

    How bad is it? One farmer says he’ll have to get rid of 95% of his herd.

    In the Netherlands, dairy farmer Martin Neppelenbroek is near the end of the line.

    New environmental regulations will require him to slash his livestock numbers by 95 percent. He thinks he will have to sell his family farm.

    “I can’t run a farm on 5 percent. For me, it’s over and done with,” he said in a July 7 interview with The Epoch Times.

    “In view of the regulations, I can’t sell it to anybody. Nobody wants to buy it. [But] the government wants to buy it. And that’s why they [have] those regulations, I think….”

    There’s a sword of Damocles hanging over them: the possibility of compulsory seizure of property by the government.

    NOS Nieuws reported that Christianne van der Wal, the country’s minister of nature and nitrogen policy, has not ruled out expropriating land from uncooperative farmers.

    According to a report from the U.S. Department of Agriculture’s Foreign Agriculture Service, the Dutch government has said its approach means “there is not a future for all [Dutch] farmers.”

    You would think that with the world facing the prospect of widespread famine later this year, that the the commissars might pause their radical, agriculture-destroying policies until that problem is dealt with.

    You would be wrong.

    And the Dutch government seems to be escalating their violence at the same time Dutch farmers are hanging themselves.

    This Dutch farmer thinks the real reason is that radical left-wingers want to get rid of all animal products.

    The Dutch farmer revolt is especially important, since a lot of leftwing environmental activists want to import the same seizure tactics here.

    This week news broke that congressional Democrats had finally reached a deal on the largest piece of climate legislation in American history. The bill is a tax-and-spend cornucopia of some $369 billion for wind, solar, geothermal, battery, and other industries over the next decade, along with generous subsidies for electric vehicles and incentives to keep nuclear plants open and capture emissions from industrial plants.

    After pretending to oppose Senate Majority Leader Chuck Schumer’s climate legislation, West Virginia Sen. Joe Manchin relented this week, clearing the way for the bill to proceed. Senate Democrats say the bill will allow the U.S. to cut greenhouse emissions by 40 percent below 2005 levels by 2030 — matching up nicely with the UN’s “Agenda 2030.”

    Understand that the Senate bill isn’t the end, it’s the beginning. Climate activists and ideologues are working at the highest levels to transform not just the global food supply, but the nature of private property and property rights, all in the name of saving the planet. What Rutte and his government are doing to Dutch farmers, Schumer and Biden are planning to do to American farmers and American industries.

    So pay attention to the roadside fires and blocked highways and mass civic unrest in places like the Netherlands and Sri Lanka. America is next.

    Overstatement? Probably. But you know that a lot of Democratic politicians and environmentalists see such radical actions as a model to implement here.

    Eric Schmitt Wins Missouri GOP Senate Race

    August 3rd, 2022

    Good news, everyone! Missouri’s Attorney General Eric Schmitt has won the Republican Senate primary.

    Eric Schmitt has won the Republican nomination for Senate in Missouri, NBC News projects, ending a comeback bid by the state’s disgraced former governor, Eric Greitens.

    Schmitt, the state’s attorney general, was leading Rep. Vicky Hartzler, with Greitens further behind in third place, according to early results. He will face the winner of Tuesday’s Democratic primary, Trudy Busch Valentine, a nurse and heir to the Anheuser-Busch beer fortune. NBC News projects that Valentine has beat out 10 other Democrats, including Lucas Kunce, a Marine veteran with national support among progressives, who earned a late endorsement from Sen. Bernie Sanders, I-Vt.

    The Democratic primary was sleepy compared to the GOP contest, which commanded extraordinary attention for a primary in a reliably red state.

    You may remember Schmitt smacking down Soros-backed Democratic St. Louis prosecutor Kim Gardner for trying to charge Mark and Patricia McCloskey with felonies for daring to exercise their Second Amendment rights to defend themselves. (Ironically, Mark McCloskey was one of the people he defeated in the primary, as the Democrat-mugged-by-reality-turned-Republican came in a distant fifth.)

    Schmitt received a whole lot of conservative endorsements, including Gun Owners of America, Ted Cruz, Mike Lee, and the Senate Conservative Fund.

    Like Texas Attorney General Ken Paxton, he also spends a good bit of time suing the Biden Administration for unconstitutional policies. “I wake up, I go to the office, I sue Joe Biden, I go home.”

    Schmitt should make a good, conservative senator.

    Is Russia’s Economy Collapsing?

    August 2nd, 2022

    Given the cutoff from SWIFT, the widespread economic sanctions, and the huge pullout of Western firms from Russia in the wake of their invasion of Ukraine, I would have expected more signs of the widely predicted economic decline on the part of Russia than we’ve been seeing.

    However, this report from the Yale Chief Executive Leadership Institute (CELI) says that the sanctions are indeed crippling Russia’s economy.

    Some skepticism is probably in order, as CELI’s head, Jeffrey A. Sonnenfeld, for all his talk of advising both Trump and Biden, is a Biden donor, and we all know the great lengths our political elites to lie in order to cover up the Biden Administration’s many manifest failures. But reading through the report there seems to be a substantial amount of evidence to support the thesis.

    The summary:

    As the Russian invasion of Ukraine enters into its fifth month, a common narrative has emerged that the unity of the world in standing up to Russia has somehow devolved into a “war of economic attrition which is taking its toll on the west”, given the supposed “resilience” and even “prosperity” of the Russian economy. This is simply untrue – and a reflection of widely held but factually incorrect misunderstandings over how the Russian economy is actually holding up amidst the exodus of over 1,000 global companies and international sanctions.

    That these misunderstandings persist is not surprising. Since the invasion, the Kremlin’s economic releases have become increasingly cherry-picked, selectively tossing out unfavorable metrics while releasing only those that are more favorable. These Putin-selected statistics are then carelessly trumpeted across media and used by reams of well-meaning but careless experts in building out forecasts which are excessively, unrealistically favorable to the Kremlin…

    Our team of experts, using Russian language and unconventional data sources including high frequency consumer data, cross-channel checks, releases from Russia’s international trade partners, and data mining of complex shipping data, have released one of the first comprehensive economic analyses measuring Russian current economic activity five months into the invasion, and assessing Russia’s economic outlook.

    From our analysis, it becomes clear: business retreats and sanctions are crippling the Russian economy, in the short-term, and the long-term. We tackle a wide range of common misperceptions – and shed light on what is actually going on inside Russia.

    Here are their main points (generic paper reference verbiage elided):

  • Russia’s strategic positioning as a commodities exporter has irrevocably deteriorated, as it now deals from a position of weakness with the loss of its erstwhile main markets, and faces steep challenges executing a “pivot to Asia” with non-fungible exports such as piped gas…
  • Despite some lingering supply chain leakiness, Russian imports have largely collapsed, and the country faces stark challenges securing crucial inputs, parts, and technology from hesitant trade partners, leading to widespread supply shortages within its domestic economy…
  • Despite Putin’s delusions of self-sufficiency and import substitution, Russian domestic production has come to a complete standstill with no capacity to replace lost businesses, products and talent; the hollowing out of Russia’s domestic innovation and production base has led to soaring prices and consumer angst…
  • As a result of the business retreat, Russia has lost companies representing ~40% of its GDP, reversing nearly all of three decades’ worth of foreign investment and buttressing unprecedented simultaneous capital and population flight in a mass exodus of Russia’s economic base…
  • Putin is resorting to patently unsustainable, dramatic fiscal and monetary intervention to smooth over these structural economic weaknesses, which has already sent his government budget into deficit for the first time in years and drained his foreign reserves even with high energy prices – and Kremlin finances are in much, much more dire straits than conventionally understood…
  • Russian domestic financial markets, as an indicator of both present conditions and future outlook, are the worst performing markets in the entire world this year despite strict capital controls, and have priced in sustained, persistent weakness within the economy with liquidity and credit contracting – in addition to Russia being substantively cut off from international financial markets, limiting its ability to tap into pools of capital needed for the revitalization of its crippled economy…
  • Looking ahead, there is no path out of economic oblivion for Russia as long as the allied countries remain unified in maintaining and increasing sanctions pressure against Russia…
  • I believe the first part of the first point is too speculative (“Rising Prices Mask Irreversible Deterioration in Long-Term Strategic Positioning”) and forward-looking to be worth examining. Russia isn’t worried about long-term positioning if it can use its gas pipeline leverage to crack the sanctions regime against it this year. The second “pivot to Asia difficulties” part is something I’ve covered here.

    First they cover why you can’t trust Russian statistics (duh):

    The Kremlin’s economic releases are becoming increasingly cherry-picked; partial, and incomplete, selectively tossing out unfavorable statistics while keeping favorable statistics. The Russian government is no longer disclosing certain economic indicators which prior to the war were updated on a monthly basis, including all foreign trade data, including those relating to exports and imports, particularly with Europe; oil and gas monthly output data; commodity export quantities; capital inflows and outflows; financial statements of major companies, which used to be released on a mandatory basis by companies themselves; central bank monetary base data; foreign direct investment data; and lending and loan origination data, and other data related to the availability of credit.

    The fact the data is so bad they’re not even trying to alter or spin it suggests things are pretty bad.

    Even Rosaviatsiya, the federal air transport agency, abruptly ceased publishing data on airline and airport passenger volumes. As a measure of comparison, prior to the war, the only economic data which have historically been classified and quarantined by the Russian government are sensitive metrics related to the trade of military goods, aircraft, and nuclear materials.

    Although the Kremlin explains away its newfound desperate obfuscation of its revenue and spending data and other macroeconomic indicators of overall economic health under the guise of “minimizing the risk of the imposition of additional sanctions”, what little data has trickled out from the Kremlin suggests the real reason may lie in the fact these statistics are unlikely to be positive for the Kremlin, and getting worse by the day. For example, total oil and gas revenues dropped by more than half in May from the month before, by the Kremlin’s own numbers. As one economist wrote, “it’s likely that the Kremlin is afraid of publishing data that reveal the full scale of the economy’s collapse”.

    Second, even those favorable statistics which are released are questionable if not downright dubious when measured against cross-channel checks, verification against alternative benchmarks and given the political pressure the Kremlin has exerted to corrupt statistical integrity. Indeed, the Kremlin has a long history of fudging official economic statistics, even prior to the invasion. Putin has on several occasions shunted aside heads of Rosstat who produced economic statistics which were not to his liking, and he personally transferred control of the agency to political appointees at the Economic Ministry, depriving the agency of its prior status as an independent branch of government free from political influence. Outside observers ranging from international organizations to foreign investors regularly sound alarm bells over “concerns about the reliability and consistency” of the Kremlin’s economic releases, especially given the propensity of Kremlin economists for “switching to new methodologies” with alarming frequency – many instances of which are not even disclosed. Concerns over meddlesome political interference must be given even more weight now that Putin appointed Sergei Galkin, the former Deputy Economic Minister and the most blatantly political pick in recent history as head of Rosstat in May.

    Third, and as mentioned briefly previously, almost all rosy projections and forecasts are irrationally extrapolating economic releases from the early days of the post-invasion period, when sanctions and the business retreat had not taken full effect, rather than the most recent, up-to-date numbers from recent weeks and months – partially due to the fact the Kremlin stopped releasing updated numbers, constraining the availability of datasets for economic researchers to draw upon. For example, many alarming forecasts projecting strong revenue from energy exports were based on the last available official export data from March, even though many business withdrawals and sanctions on energy had not yet taken effect, with orders placed prior to the invasion still being delivered.

    Take, as one instance of many, one widely cited study by Bloomberg decrying Russia’s surge in revenue from energy exports. The authors wrote: “even with some countries halting or phasing out energy purchases, Russia’s oil-and-gas revenue will be about $285 billion this year, according to estimates from Bloomberg Economics based on Economy Ministry projections. That would exceed the 2021 figure by more than one-fifth”. No doubt, Russia has continued to draw significant revenue from energy exports – a complex topic which we analyze in-depth in the sections below.

    But this specific Bloomberg analysis projected Russia’s 2022 energy export revenues based on its revenue through March of 2022 as disclosed by the Kremlin, even though the Kremlin has belatedly acknowledged that energy export revenues in May and June have diminished significantly. In fact, only after a long and unexplained delay did the Kremlin finally disclose that total oil and gas revenues dropped by more than half in May from prior months, by the Kremlin’s own numbers – along with the declaration that the Kremlin would cease releasing any new oil and gas revenues from that point on. Nevertheless, the misleading Bloomberg forecast carelessly extrapolating out initial energy export volumes into the rest of the year was then repeated by leading voices including Fareed Zakaria and others in proving the supposed “resilience” and even “prosperity” of the Russian economy.

    On the collapse of Russian imports:

    Imports consist of ~20% of Russian GDP, and the domestic economy is largely reliant on imports across industries and across the value chain with few exceptions, despite Putin’s bellicose delusions of total self-sufficiency.

    Snip.

    By far and large, the flow of imports into Russia has drastically slowed in the months since the invasion. A review of trade data from Russia’s top trade partners – since, again, the Kremlin is no longer releasing its own import data – suggests that Russian imports fell by upwards of ~50% in the initial months following the invasion.

    And China isn’t replacing western countries as a source of imports.

    In the initial days of the Russian Business Retreat, when hundreds of western businesses rushed to exit Russia, the authors – who were deluged with media inquiries given the prominence of the Yale CELI List of Companies curtailing operations in Russia – were frequently asked whether Chinese companies would rush to fill the spots vacated by western businesses. Many naïve observers cynically remarked that the Business Retreat would be futile, as Chinese companies would relish the opportunity to do more business in Russia, and the Russian economy would barely miss a beat. This is not at all what has played out – and quite to the contrary.

    In fact, according to recent monthly releases from the Customs General Administration of China, which maintains detailed Chinese trade data with detailed breakdowns of exports to individual trade partners, Chinese exports to Russia plummeted by 50% from the start of the year to April, falling from over $8 billion monthly at the end of 2021 to under $4 billion in April. This aligns with our anecdotal observations of several Chinese banks withdrawing all credit and financing from Russia following the start of the invasion, including ICBC, the New Development Bank, and the Asian Infrastructure Investment Bank, in addition to energy giants such as Sinochem suspending all Russian investments and joint ventures.

    The explanation for China’s reticence, once again, lies in the asymmetric nature of Russia’s relationships with its trading partners. Even on imports, it is clear that Russia needs its trade partners far more than its trade partners need Russia – and the power dynamic is not even close to being balanced.

    This imbalance is put into stark relief when the proportion of imports Russia draws from China is compared to the proportion of exports China sends to Russia. Russia is not even in the top ten destinations for Chinese exports; in 2021 alone, China exported over $500 billion in goods and services to its largest trade partner, the United States, representing ten times the amount of goods it sent to Russia ($72 billion). On the other hand, China represents Russia’s largest source of imports by far; in fact, the $72 billion in imports Russia draws from China is nearly three times the amount of imports Russia draws from its second largest partner, Germany ($27 billion), and five times the amount of imports Russia draws from its third largest partner, the United States.

    Given the extremely minor proportion of Chinese exports going to Russia vis-à-vis China’s trading relationship with the United States and Europe, clearly most Chinese companies are much more wary of losing access to US and European markets by running afoul of US sanctions and crossing US companies than they are of losing whatever erstwhile market share they had in Russia. The dangers of losing access to US technology are already readily apparent from China’s point of view. When the US imposed export restrictions on Chinese telecom companies Huawei and ZTE in 2020, they were unable to source advanced microchips and saw a massive reduction in their chip-dependent smartphone businesses – a fate which no Chinese company wants to suffer by running afoul of US sanctions related to Russia.

    China is the most prominent example, but other trade partners have been just as reticent to export to Russia. In fact, it appears that exports to Russia from sanctioning and non-sanctioning countries have collapsed at a roughly comparable rate in the months following the invasion. One analysis found that non-sanctioning countries saw exports to Russia fall by an average of 40%, while sanctioning countries saw exports fall an average of 60%, reflecting the disadvantaged economic position Russia finds itself vis-à-vis practically all its trade partners regardless of political rhetoric

    Snip.

    One survey done by the Central Bank of Russia found that well over two-thirds of surveyed companies experienced import problems, and manufacturers, in particular, reported a shortage of raw materials, parts, and components. Unsurprisingly, the focus has shifted towards import substitution – a topic analyzed in closer detail in Section IV. But in short, this has not been fruitful. Despite Russian companies’ desperate efforts to find alternative production and re-orient supply chains towards domestic substitutes, according to a survey by Russia’s Gaidar Institute for Economic Policy, a whopping 81% of manufacturers said they could not find any Russian versions of imported products they need, and more than half were “highly dissatisfied” with the quality of homegrown production even when domestic substitutes could be sourced.

    On to the failure to find adequate domestic substitutes. I’m going to skip over a lot of the stuff I don’t really give a rat’s ass about (radical declines in new car sales) as it’s not particularly important except as evidence of aggregate demand destruction. Others are much more surprising: Fruits and vegetables and fish production are down as well, despite Russia supposedly being the country that can supply all its own fertilizer needs. (And pesticides and fertilizers are also down.)

    When domestic industrial production is measured by volume rather than value added, cross- filtered against a more granular breakdown by sub-industry, the picture becomes even bleaker suggesting large-scale shutdowns of the Russian industrial base, which is evidently operating at a fraction of its usual capacity. Industrial production volume in crucial industries such as appliances, railways, steel, textiles, batteries, apparel, and rubber fell by well over 20%, while other sub-industries such as electronics, sports, furniture, jewelry, fertilizers, and fishing fell in excess of 10%.

    And despite Putin’s rallying cries of self-sufficiency, all of these industries share a crucial similarity: they simply cannot replace imported parts and components that Russia lacks the technological prowess to make, and illicit, shadowy parallel imports can only go so far. For example, the Russian tank producer Uralvagonzavod has furloughed workers based on input shortages.

    So much for the Russian trolls that claim Uralvagonzavod’s is still cranking out tanks unimpeded!

    Russian production of tanks, missiles and other equipment relies on imported microchips and precision components that simply cannot be sourced right now. Likewise, Russia’s Caspian pipeline has had challenges finding spare parts related to the US and EU’s ban on exports related to gas liquefaction. Each of these supply disruptions – which cannot be replaced by import substitution or parallel imports – leads to production shutdowns which then ripple across the entire supply chain, bringing various ancillary products and services into a simultaneous standstill.

    The breadth of this industrial production slowdown across the Russian economy is further worsened by a rapidly deteriorating outlook for new purchases and orders. A reading of the Russian Purchasing Managers’ Index (PMI) – which captures how purchasing managers are viewing the economy – shows that new orders have plunged across the board, both in terms of domestic Russian orders as well as Russian orders for foreign products and foreign orders of Russian products. Clearly, purchasing managers want nothing to do with placing new orders until the geopolitical environment stabilizes. Likewise, PMIs highlight that inventories have dropped and delivery times have increased in the context of widespread supply-chain problems, so even if new orders were to be placed, the fulfillment of those orders would continue to pose steep challenges to Russian domestic production.

    Also hurting Russia is the fact that over 1,000 global companies have curtailed operations there. (Though some still remain; why the hell is Cloudflare, Carl’s Jr. and Sbarro still doing business there?)

    When the list was first published the week of February 28, only several dozen companies had announced their departure from Russia. In the two months since, this list of companies staying/leaving Russia has already garnered significant attention for its role in helping catalyze the mass corporate exodus from Russia, with widespread media coverage and circulation across company boardrooms, policymaker circles, and other communities of concerned citizens across the world.

    Based on the authors’ proprietary database tracking the retreats of over 1,000 companies, our researchers found that across all these 1,000 companies aggregated together, the value of the Russian revenue represented by these companies and the value of these companies’ investments in Russia together exceed $600 billion – a startling figure representing approximately 40% of Russia’s GDP. We further found that these companies, in total, employ Russian local staff of well over 1 million individuals. The value of these companies’ investment in Russia represents the lion’s share of all accumulated, active foreign investment in Russia since the fall of the Soviet Union – meaning the retreat of well over 1,000 companies in the span of three months has almost single-handedly reversed three decades’ worth of Russian economic integration with the rest of the world, while undoing years of progress made by Russian business and political leaders in attracting greater foreign investment into Russia.

    To be sure, this is not to say that the GDP of Russia will contract 40% overnight. Many of the 1,000+ businesses who have curtailed operations in Russia are still in the process of winding down their operation, meaning it will take months if not even years to feel the full impact of their withdrawal. Other companies from this list of 1,000+ have already divested or sold their Russian businesses to local Russian operators, which means that even though these businesses will lack western technical and financial support and know-how and deteriorate in the long-run, in the short-term, they will still continue to operate to some extent and thus cannot be written off from Russian GDP immediately. There are also some companies which continue some operations in Russia while pulling out of other operations, so any hit to Russian GDP from these companies would be partial rather than total. It is impossible to capture the full economic impact of the Russian business retreat as many of the most devastating consequences will be felt years from now -with long-term structural losses to the Russian economy beyond any single dollar figure of lost revenue or lost investment. Nevertheless, the fact that the 1,000+ companies that have curtailed operations represent such a high proportion of Russia’s GDP – 40% – signifies the importance of these economies to the Russian economy prior to the war, and how the Russian economy must now undergo dramatic, forced transformations with these companies pulling out, as amplified throughout this paper.

    Some might argue that the companies that curtailed operations in Russia were forced to incur a short-term loss in Russian revenue and investment – despite the fact the impact on Russia is more painful in both the short-term and the long-term – but it is not even true to say that the companies leaving Russia incurred any losses. In fact, rather than penalizing companies for leaving Russia, in a separate study, we found that foreign investors by far and large rewarded companies for removing the risk overhang associated with exposure to Russia – that the value of aggregate stock market gained since the start of the invasion for companies that have left Russia far outweigh the value of Russian asset divestitures and lost Russian revenue, which for most multinational corporations, represented a small fraction of total revenue to start with – no more than 1-2% in most cases. Thus, clearly the loss of 1,000+ companies has been borne solely by Russia – in both the short-term and the long-term – while leaving Russia actually benefited companies.

    Not to mention the brain drain and capital flight:

    Unsurprisingly, the Russian business retreat has coincided with rapid “brain-drain” as talented, educated Russians flee the country in droves. It is impossible to assess the exact number of Russians who have left Russia permanently since the outset of the invasion, but most estimates peg the number as no less than five hundred thousand – with the vast majority being highly-educated and highly-skilled workers in competitive industries such as technology. The mass exodus of skilled Russian natives is further amplified by the forcible expulsion of a not-insignificant population of western expatriates working in Russia. These workers – who understand the structural challenges facing the Russian economy and technical hurdles obstructing Putin’s vows of self-sufficiency and import substitution – are joined by many of Russia’s few remaining high-net-worth and ultra-high-net-worth individuals, who understand that capital controls, taxes, the business and investment climate, and government restrictions are only likely to become worse in the years ahead, particularly for those holding financial capital. By one measure, 15,000 ultra-high-net-worth individuals have fled Russia since the invasion began, which would represent 20% of the population of Russia’s ultra-high-net-worth individuals at the outset of the war. These Russians, as the holders of significant capital, seek the safety, security, and stability of western financial markets, especially as Russia’s access to those markets shrinks.

    These high net worth individuals are bringing their wealth with them when they flee, contributing to soaring private capital outflows, even by the Central Bank of Russia’s own admission. The official level of capital outflows indicated by the Bank of Russia in Q1, nearly $70 billion USD, is likely to be a gross underestimate of the actual level of capital outflows, given strict capital controls implemented by the Kremlin restricting the amount of wealth Russian citizens can transfer out of the country, particularly foreign-currency denominated wealth. Any additional capital outflows which have skirted these capital controls are unlikely to have been captured by the Central Bank of Russia’s gauge, and indeed, by all anecdotal reports, wealthy Russians are flocking for safe havens in droves.

    Next up, just why we haven’t yet seen an actual collapse: unsustainable fiscal stimulus and capital controls.

    As global businesses swarmed for the exits and after the implementation of devastating sanctions by the US and EU in the early weeks following the invasion, many western economists and policymakers had unrealistic expectations that the Russian economy may collapse or that a financial crisis might take hold. Sanction regimes very rarely cause instantaneous financial crises or economic collapses; rather, they tend to be longer-duration tools designed to structurally weaken a nation’s economy while isolating it from global markets. Indeed, as this paper has shown, the impact of business retreats and sanctions on the Russian economy has been nothing short of catastrophic, eroding the Russian economy’s competitiveness while exacerbating internal structural weaknesses.

    But for those who expected a more rapid collapse in the Russian economy, and who were shocked this did not occur – much of the reason the Russian economy proved marginally more resilient than initially expected has to do with the unprecedented and unsustainable fiscal and monetary response initiated by the Kremlin. A little-understood but critically important component of Russia’s economic journey since the outset of the invasion, the Kremlin’s fiscal and monetary response has largely averted a credit/liquidity squeeze, which could have induced a financial panic, while propping up the economic livelihoods of many core constituencies of the Putin regime, ranging from state owned enterprises to pensioners and retirees – rescuing them from sudden economic catastrophe.

    One of the best case studies for how, through massive and unsustainable government intervention, the Kremlin has been able to temporarily prop up the Russian economy also happens to be one of Putin’s favorite propaganda talking points: the appreciation of the ruble, which is now the strongest-performing currency this year by some measures. Overnight, as soon as the invasion commenced, the exchange rate for the ruble relative to the dollar jumped from ~75 to ~110 – but the Kremlin immediately announced a rigorous set of capital controls on the ruble including a blanket ban on citizens sending money to bank accounts abroad and foreign money transfers; a suspension on cash withdrawals from dollar banking accounts beyond $10,000 per person; a mandate for all exporters to exchange 80% of foreign currency earnings for rubles; a suspension of direct dollar conversions for individuals with ruble-denominated banking accounts; a suspension of domestic lending in foreign currencies; a suspension of dollar sales across domestic banks; a mandate that companies pay foreign-denominated debt in rubles; and encouragement of individuals to redeem dollars for rubles out of patriotic duty. These restrictive capital controls – which rank amongst the most restrictive of any government in the world – immediately made it effectively impossible for domestic Russians to purchase dollars legally or even access a majority of their dollar deposits, while artificially inflating demand for rubles through forced purchases by major exporters. These capital controls, which have only weakened slightly in the four months since the outset of the invasion, continue to prop up the ruble’s official exchange rate with artificial strength across onshore and offshore markets.

    However, the official exchange rate given the presence of such draconian capital controls can be misleading – as the ruble is, unsurprisingly, trading at dramatically diminished volumes compared to pre-invasion on low liquidity. By many reports, much of this erstwhile trading has migrated to unofficial ruble black markets, where the spread between the official exchange rate and the actual exchange rate is equally dramatic – upwards of 20% to 100% higher than the official exchange rate, in some cases, given a shortage of obtainable, liquid dollars within Russia. Even the Bank of Russia has admitted that the exchange rate is a reflection more of government policies and a blunt expression of the country’s trade balance rather than freely tradeable liquid FX markets.

    The Kremlin’s implementation of capital controls pales in comparison to the unsustainable full-scale fiscal and monetary stimulus launched over the last few months, stretching to every corner of the Russian economy. That the Kremlin would flood the Russian economy with such a deluge of Kremlin-initiated spending was far from certain in the initial days of the war. Initial attempts by the Kremlin to intervene in the economy when the invasion started were marked by relative restraint, defined by measures such as shutting down trading on the Moscow Stock Exchange and suspending measures intended to be largely transitory in nature. But when it became apparent that western sanctions were not being lifted and that the Russian economy would not go back to “normal” anytime soon, Putin announced escalating waves of fiscal and monetary stimulus targeted at easing the economic pain faced by individuals and companies. These measures included subsidized loans and loan payment assistance to companies; transfer payments to affected industries; subsidized mortgages and mortgage payment assistance; increases in direct payments to individuals including families, pregnant women, government employees, pensioners, military, low-income; recapitalization of companies by the National Wealth Fund, the sovereign wealth fund of Russia; nationalization and recapitalization of certain companies and assets; subsidized credit forgiveness approaching a debt jubilee; subsidized protection from bankruptcy and foreclosure; drawdowns from the National Wealth Fund for state expenditures; and subsidized infrastructure development – to name only a few.

    The ultimate scale of these relief expenditures is still unclear as they are currently ongoing, but initial signs point towards a massive, unprecedented magnitude of spending. By the Central Bank of Russia’s own data releases, the Russian money supply – M2, which includes cash, checking deposits, and cash-convertible proxies of store-holders of value – ballooned by nearly two times from the start of the year through June.

    A good thing that doubling your money supply almost overnight can’t possibly have any negative repercussions!

    Putin’s remaining FX reserves are decreasing at an alarming pace, as Russian FX reserves have declined by $75 billion since the start of the war – a rate which, if annualized, suggests these reserves may be spent down within a few years’ time. Critics point out that official FX reserves of the central bank technically can only decrease, not increase, due to international sanctions placed on the central bank, and suggest that non-sanctioned financial institutions such as Gazprombank can still accumulate FX reserves in place of the central bank. While this may be true technically, there is simultaneously no evidence to suggest that Gazprombank is actually accumulating any sizable reserves, considering the distress facing its own loan book, pressure to fund increasing amounts of infrastructure loans and the fact that Gazprombank has been accused of being the conduit through which the Kremlin indirectly transfers the regular military pay and combat bonuses of Russian soldiers fighting in Ukraine. These signs point toward Gazprombank simply channeling massive government expenditures outward with the government spending down immediately rather than stashing away government revenues for later.

    Snip.

    The challenges facing Russia’s sovereign financing are exacerbated by Russia’s newfound lack of access to international capital markets. With Russia’s first default since 1917 on its sovereign debt, Russia is now frozen out of international debt issuances for years to come and unable to tap into traditional sovereign financing across international capital pools. Russia can continue to issue its version of domestic bonds, known as OFZs, but the total capital pool available within Russia domestically is a fraction of the financing needed to sustain these levels of spending by the Russian government over an entire economic cycle. And indeed, the Finance Minister has confirmed that Russia is not raising debt to pay for its fiscal program and has no plans to do so in the near-term.

    “Financial Markets Pricing In Sustained Weakness In Real Economy with Liquidity and Credit Contracting.” Yeah, I’m just going to skip over all that. Just note that not even Russians want to buy Russian real estate or stock.

    Let’s jump to the conclusion. After reiterating the main points:

    Looking ahead, there is no path out of economic oblivion for Russia as long as the allied countries remain unified in maintaining and increasing sanctions pressure against Russia.

    Is Russia’s economy collapsing? Not quite yet. Actual economic collapse is what we’re seeing in Sri Lanka: You can’t buy food, you can’t buy fuel, and you can’t keep the lights on. Russia isn’t there yet. However, the authors do present compelling evidence that Russia’s economy is contracting quite dramatically, and will continue to get worse as long as the war and sanctions continue.

    Peter Zeihan: World Agricultural Output Is Screwed, US Output Is Not

    August 1st, 2022

    Peter Zeihan (him again) spoke at Iowa’s Swine Day on the topic of Agriculture at the End of the World:

    At lot of this is Zeihan’s polished Greatest Hits presentation (Deglobalization, the need to stop Russia in Ukriane to prevent a future conflict with NATO that would go nuclear, China’s demographic crash, the cult of personality/isolation of Xi Jinping, China’s absurd never-ending Flu Manchu lockdowns, etc.), but here are some highlights of specific agriculture topics:

  • Russia isn’t just destroying population centers in Ukraine, it’s deliberately targeting Ukraine’s agricultural infrastructure, including grain silos.
  • Odessa is not a normal city. It is at the mouth of the Nipur river, which is kind of their equivalent of the Mississippi, and it is also their manufacturing center. It’s a cultural hub. It’s a financial center. It is New York and Houston and St. Louis and Chicago and New Orleans all in one. And if the Russians succeed in capturing it, that is the end of Ukraine as a modern economic entity. Right now Odessa is under blockade. They can’t export anything. This has been the source of 95 of their exports to this point.

    Note: I think this speech was actually given June 30, which predates the grain export corridor agreement.

  • China’s pork industry got hit hard by swine flu three years ago, and they’re probably getting hit by it now.
  • They’re trying to regrow the swine industry with subsidies, but that’s just resulted in “Two million people who have no idea what they’re doing” buying the wrong kinds of feed.”
  • “If they don’t have pork, all they’ve got left is rice. Rice is the most phosphate input intensive crop.”
  • “The Chinese have traditionally been the world’s largest producer and exporter of phosphate, ’cause it’s a food security issue. Well they’ve stopped all exports until further notice. So we’ve lost potash because of the Ukraine War. We’ve lost phosphate because of Chinese mismanagement.”
  • Skipping over the oil stuff, but Texas is sitting pretty because it’s easier and quicker to bring shale oil production online.
  • Did I already mention that Zeihan says Russia is probably going to lose Siberian well use because if they can’t ship it off, it freezes in the permafrost?
  • “We’re not looking at a recession, we’re looking at an energy-induced depression that’s already affecting multiple continents. But not here…The baseline here are pretty good.”
  • The effect of reduced fertilizer supply to the rest of the world? “This is famine. We will have it again in the fourth quarter of this year…a half a billion to a billion people will suffer malnutrition.”
  • If you stop growing wheat on marginal land due to fertilizer shortage, you start growing it on your better land, and your export output collapses.
  • “The volume of internationally traded agricultural commodities is in the early stages of collapse.”
  • The Brazilian Serato is heavily dependent on external inputs from abroad. We, on the other hand, get the overwhelming majority of our fertilizer inputs nationally and from Canada.
  • “There is no Brazilian agricultural sector without Russian involvement. And Russian involvement is going away. It’s the world’s largest source of soy exports. And without global soy exports, there is not a global pork industry. Except here. And if we’re being nice, Canada too.”
  • Argentina will probably do fine as well.
  • “Your mid case scenario should be inflation of nine to 15% for at least the next five years.”
  • “You are looking at the fastest expansion in farm incomes, per person, and per acre that we have ever seen in this country’s history, and it will last for at least the remainder of this decade.”
  • I think Zeihan has a tendency to overstate the case sometimes, but he’s more right than wrong…