Good morning. Here’s your Daily SITREP for Thursday, 02 November 2023.
- READ TIME: 6 Minutes, 9 Seconds
- Inside the Beltway
- (1) White House Believes Netanyahu is on the Way Out
- (2) Biden Bank Rules Could Kill Green Energy Push
- (3) Biden Nominates Asia Czar for Deputy Secretary of State
- Domestic INTSUM
- (4) Bidenomics Barnstorming Tour Begins
- (5) Treasury Debt Binge Threatens U.S. Finances
- Global SITREP
- (6) Goldman Sachs: No Immediate AI Economic Benefits
- (7) Kishida Building ASEAN Allies
- (8) Far Sea CSG Exercises: Another Type of Squeeze
- (9) Egypt Opens Rafah Border Crossing with Gaza
INSIDE THE BELTWAY
- (1) WHITE HOUSE BELIEVES NETANYAHU IS ON THE WAY OUT: According to senior Biden administration officials, President Joe Biden and White House aides have discussed Israeli Prime Minister Benjamin Netanyahu’s “short political shelf life,” and the administration believes Netanyahu has limited time left as prime minister.
- “There’s going to have to be a reckoning within Israeli society about what happened,” and ultimately, “the buck stops” with Netanyahu, said one Biden official.
- Why It Matters: The Biden White House and Netanyahu have been on icy terms since Biden criticized Netanyahu’s judicial reforms earlier this year. During Biden’s visit to Israel two weeks ago, Biden effectively told Netanyahu he was on his way out. The administration is correct in its underlying analysis that Netanyahu’s political career is ending. Even if the Gaza offensive succeeds, it’s likely followed by Netanyahu’s ouster from office. – R.C.
- (2) BIDEN BANK RULES COULD KILL GREEN ENERGY PUSH: The renewable energy industry and lawmakers are warning that new rules proposed by the Biden administration to punish banks for risky investments could collide with the administration’s green energy push.
- Rep. Sean Casten (D-IL) said the new rules could mean “a massive reduction in the amount of capital that’s available to decarbonize our energy system and make investments” in cheaper renewable energy sources.
- Why It Matters: U.S. energy generation capacity has been flat since 2011, and with fossil fuel power plants set to shut down due to new EPA rules going into effect at the end of the year, generation capacity is likely to decrease. If new banking rules tank investment in green energy generation sources, there won’t be anything to replace at least some of that lost generation capacity. – R.C.
- (3) BIDEN NOMINATES ASIA CZAR FOR DEPUTY SECRETARY OF STATE: The White House said President Joe Biden will nominate Kurt Campbell, the National Security Council coordinator for Indo-Pacific affairs, to become the next Deputy Secretary of State.
- Campbell previously served as Assistant Secretary of State for East Asian and Pacific affairs and Deputy Assistant Secretary of Defense for Asian and Pacific affairs.
- Why It Matters: Combined with the White House announcement that Biden will meet with Chinese President Xi Jinping this month, which may be up in the air now, this appointment reveals that the Biden White House is turning its focus on China. The administration’s previous actions to contain Chinese tech development seem to have failed, and this pivot could be the precursor to the Biden administration focusing more soft power on the region. This pivot is happening as China’s best window of opportunity to take military action against Taiwan is opening. – R.C.
- (4) BIDENOMICS BARNSTORMING TOUR BEGINS: President Biden and his campaign team started a two-week, cross-country Bidenomics “barnstorming” tour in Minnesota yesterday, touting how $5 billion in new investments will help rural communities.
- “President Biden believes that investing in America means investing in all of America and leaving no one behind,” said Neera Tanden, head of the White House Domestic Policy Council. “That means young people in rural communities should not have to leave home to find opportunity.”
- Thirteen top administration officials will visit rural areas in 15 states, including election battlegrounds like Arizona, Michigan, and Pennsylvania.
- Why It Matters: This $5 billion in federal spending is aimed at winning over suburban and rural voters, as polls show that voters are not embracing Bidenomics. – H.B.
- (5) TREASURY DEBT BINGE THREATENS U.S. FINANCES: The U.S. Treasury Department said yesterday that it plans to “gradually” increase the size of its debt auctions and will need one more quarter of debt increases to meet its financing needs.
- The Treasury will sell $112 billion in quarterly refunding next week – consisting of $48 billion in 3-year notes, $40 billion in 10-year notes, and $24 billion in 30-year bonds.
- By early December, the Treasury expects to implement “modest reductions” to sales of Treasury bills and shortest-dated notes.
- Why It Matters: This Treasury announcement comes when government bond yields are around their highest levels since 2007. U.S. Treasury Secretary Janet Yellen failed to lock in long-term debt at near record-low rates in 2021, which billionaire investor Stanley Druckenmiller called “the biggest blunder in the history of the Treasury.” Unless rates drop or Congress lowers spending, expenses on interest alone will make up a bigger share of federal spending, crowding out needed expenditures. – H.B.
- (6) GOLDMAN SACHS: NO IMMEDIATE AI ECONOMIC BENEFITS: Goldman Sachs analysts wrote in a research note that artificial intelligence (AI) will boost global economic growth and productivity, but not until later this decade at the earliest.
- Gross Domestic Product (GDP) increases due to AI won’t exceed 0.1% until 2027 in the United States, 2028-2032 in other developed markets, and 2034 or later in emerging markets.
- Goldman Sachs’ baseline scenario is that AI could boost U.S. productivity by 1.5% if widespread adoption were achieved over a 10-year period.
- Why It Matters: Goldman Sachs analysts also forecasted how AI could displace workers. But they likely underestimated these labor impacts on economic growth and productivity and the human toll – like increased spending on pharmaceuticals and mental health services for employees put out of work by AI. Aside from labor impacts, widespread AI adoption could quickly force other economic changes, including the fast-tracking of nuclear energy to power AI data centers that will demand a large amount of electricity. – H.B.
- (7) KISHIDA BUILDING ASEAN ALLIES: Japanese Prime Minister Fumio Kishida is heading to the Philippines for a pre-ASEAN summit meeting with Filipino President Ferdinand Marcos Jr. The two leaders are expected to discuss regional security issues, reaffirm their Strategic Partnership, and discuss economic and cultural exchanges.
- A Reciprocal Access Agreement is part of the security talks. This will facilitate the two nations conducting military drills and visits, as well as exchanging equipment.
- Kishida will visit Malaysian Prime Minister Anwar Ibrahim in Kuala Lumpur immediately following the Philippines visit for similar talks.
- China says this move will encourage the Philippines to provoke China. They also accuse the Japanese of preparing the Philippines to be a “springboard for Japan’s intervention in Southeast Asia and the Taiwan Straits.”
- Why It Matters: Kishida’s visit comes just before the Japan-hosted ASEAN summit this month. The Reciprocal Access Agreement gives credence to China’s concerns about Japanese intervention in Southeast Asia. Kishida is likely building a regional coalition to oppose Chinese influence in the region and aggression over territorial disputes. If Japan does not come to Taiwan’s aid, Southeast Asia and Japan will be frontline nations for China’s next wave of expansion. This is a key issue for the U.S. because we have mutual defense treaties with both the Philippines and Japan. – J.V.
- (8) FAR SEA CSG EXERCISES: ANOTHER TYPE OF SQUEEZE: The Chinese Shandong Carrier Strike Group (CSG) is conducting another “far sea exercise” about a month after its most recent one.
- The exercise is happening in the Philippine Sea, southeast of Taiwan.
- Numerous land-based aircraft joined the CSG for the exercise.
- Why It Matters: After reviewing Forward Observer’s People’s Liberation Army (PLA) Incursion tracker, it appears the PLA conducted a similar exercise in August as well. These exercises appear to be a new way for the PLA to “squeeze” Taiwan during its Squeeze and Release cycles. While monthly two-week deployments will be taxing on the PLA Navy, China’s latest carrier, the Fujian, will enter service at the end of the year and may begin conducting similar exercises to relieve pressure on the Shandong while maintaining pressure on the Taiwanese. This would normalize a Chinese CSG presence on the Eastern side of Taiwan, which degrades early warning and pre-positions them to intercept any potential U.S. Navy interventions. – J.V.
- (9) EGYPT OPENS RAFAH BORDER CROSSING WITH GAZA: Egyptian officials opened the Rafah border crossing with Gaza, allowing foreigners and seriously wounded civilians into Egypt.
- The limited opening of the sole path out of Gaza came after Hamas released four hostages and Israeli military forces rescued one Israeli soldier captured by Hamas during its Oct 7th raid.
- Israeli armored units advanced deeper into Gaza on Wednesday while Israeli air forces jets struck high-level Hamas targets across the territory.
- Why It Matters: Israel still retains the advantage in its war against Hamas. Despite Yemen declaring war on Israel and much tough talk from Turkey, Iran, and a number of Iran-backed militia groups, no significant third-party interventions in the conflict have materialized. Countries and groups that have declared solidarity with Hamas are rapidly approaching the put-up-or-shut-up moment of the conflict. If they fail to come to Hamas’ aid and allow it to be destroyed by Israel, they will likely lose significant credibility with the Islamic extremist street – a small silver lining that could have larger, long-term ramifications on future Middle East geopolitics. – M.M.
— END REPORT
M.S. indicates analyst commentary from Mike Shelby
M.M. indicates analyst commentary from Max Morton
J.V. indicates analyst commentary from Jared Vaughn
R.C. indicates analyst commentary from Robert Cook
H.B. indicates analyst commentary from Harrison Burge
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