March 24, 2023
Welcome to Home & Away. Big stories for each this week.
Here at home story number one is the economy. Or, more specifically, the banking sector. Seems to me the Fed has gotten it wrong twice. It was slow to start raising interest rates and as a result has been playing catch up with inflation ever since. And then it took its eye off the ball when it came to supervising banks, several of which were not ready for higher rates and made themselves vulnerable to a classic bank run by depositors.
All of which is to say the slow response to inflation contributed to the banking crisis that has already claimed two institutions (SVB and Signature Bank). This crisis quickly spread beyond the United States, with pressure mounting on Credit Suisse, forcing UBS to quickly purchase the beleaguered bank. It is too soon to know whether First Republic will survive even with a massive, orchestrated effort to shore it up.
But lingering questions about the health of the banking sector (in particular, smaller regional banks) has made it more difficult for the Fed to raise rates to battle inflation as sharply as it would if there were no banking problem. The decision Wednesday was to go up 25 basis points, half of what many expected before Silicon Valley Bank became a household name.
The odds of a recession have gone up, with borrowing becoming more costly. And despite Treasury Secretary Yellen’s inconsistent statements on the subject, there is the likelihood of a new paradigm for banking in this country. This would almost certainly take the form of greater government insurance of deposits (from $250,000 per depositor up to $1 or $2 million or even higher) in exchange for tighter supervision of many banks now that just about any of them turns out to be systemically important.
On the political side here at home it is once again mostly about Donald Trump. The news is all about potential indictments, perp walks, etc. I know that no one is above the law, but going after Trump for allegedly altering documents to hide hush money going to a porn star strikes me as a bad idea. It lacks heft and relevance and will be seen by anyone remotely sympathetic to him as motivated by politics more than law.
I would prefer the authorities go after him for any number of more serious crimes that he could well be guilty of, from sedition to election subversion and lying about his handling of highly classified documents. And speaking of authorities, I would much prefer that it was the federal government in the lead rather than a New York City-based district attorney whose enthusiasm for arresting criminals is shall we say limited and selective. I say this realizing full well it doesn’t help that the attorney general is someone who approaches the job with a judicial rather than a prosecutorial perspective.
In Away the big story this week was Chinese leader Xi Jinping’s visit to Russia on the heels of Vladimir Putin (or his body double as was suggested) visiting Crimea and then Mariupol. Xi seems to have doubled down on his ties to Putin, whom I gather he has now met no fewer than forty times. What there is between the two countries is a strategic partnership (with Xi in a senior role) if not quite an alliance.
Nothing new emerged from their meetings on Ukraine. China wants to appear to be a peacemaker, likely in an attempt to salvage its ties with Western Europe, although there is no evidence it is prepared to lean on Russia to make peace. There was nothing explicit about the provision of military assistance although China is in a position to continue to help Russia diplomatically and economically and possibly militarily. I continue to believe China does not mind that the United States finds itself preoccupied with Russia in Europe. Xi’s calculus is that China benefits from establishing a long-term, close partnership with a country that has no other strategic options and shares its antipathy toward U.S. foreign policy and the U.S.-led international order, regardless of the reputational and other costs.
One other note on Ukraine: the split screen of Xi Jinping in Moscow while Japanese Prime Minister Fumio Kishida made an unannounced visit to Kyiv was striking and highlights how far Japan has come over the past 75 years and even over the past decade. As I have been saying repeatedly, Japan’s emergence as a real geopolitical power is likely the most underappreciated development in international affairs in recent years.
The other big story is the latest evidence the world is failing to meet the challenge of climate change. It is not all that surprising, as individual governments are reluctant to pay a near term price for what is seen (increasingly incorrectly) as a long-term, collective problem. I don’t see COP 28 (set for the UAE late this year) making much of a difference.
Whatever hope exists lies in technology: the development of better batteries, a new generation of nuclear reactors, wind and solar, more effective and efficient grids, carbon capture, possibly particles that could be injected into the atmosphere to reflect sunlight and cool the earth. Many of these will emerge quicker if public-private partnerships are developed.
Arrangements will have to be made so that proven technologies can be made available on terms poorer countries can afford. A comprehensive policy will also require continued dependence for the foreseeable future on fossil fuels, ideally natural gas more than oil and both oil and gas rather than coal. Funds will also need to be increased to assist countries in adapting to climate change that is already underway. All of which suggests that the gap between where we are on climate change and where we need to be is large and getting larger.
And last but not least some links. I had a wide-ranging discussion on the state of the world with Project Syndicate as well as a conversation with my Rabbi on The Bill of Obligations.
In the news
Monday, March 20: MSNBC Morning Joe
Wednesday, March 22: MSNBC José Diaz-Balart Reports
Richard Haass on Says More, Project Syndicate
Conversations with Cosgrove: The Future of Our Democracy with Dr. Richard Haass, Park Avenue Synagogue Podcast