Good morning. Here’s your Daily SITREP for Monday, 28 August 2023.
- READ TIME: 4 Minutes, 45 Seconds
- Inside the Beltway
- (1) White House Signaling Government Shutdown Worries
- (2) McCarthy: Biden Impeachment Inquiry a “Natural Step”
- (3) China Remains Embedded in U.S. Supply Chains Despite “De-risking”
- Domestic INTSUM
- (4) Zombie Alert: Distressed Companies Hit New Highs
- (5) Biden Concerned After UAW Votes to Authorize Strike
- Global SITREP
- (6) Mexican Leftists Call for Supreme Court Direct Elections
- (7) Saudis Play China, Russia, France Against U.S. in Nuclear Bid
- (8) China and Singapore Increase Military Ties
- (9) Ukraine Military Forces Take Key Terrain
INSIDE THE BELTWAY
- (1) WHITE HOUSE SIGNALING GOVERNMENT SHUTDOWN WORRIES: The White House announced that President Biden will use authorities under the Balanced Budget and Emergency Deficit Control Act of 1985 to exempt military personnel funding from any automatic cuts if Congress does not meet the debt-ceiling deal deadline to pass 12 spending bills.
- Why It Matters: The White House continues to prepare for a government shutdown, whether it comes on 01 October or 01 January 2024. Biden seems to agree with 80% of “K Street” lobbyists that the fight over spending bills in Congress is likely to go past the 01 January 2024 deadline for automatic cuts. – R.C.
- (2) MCCARTHY: BIDEN IMPEACHMENT INQUIRY A “NATURAL STEP”: House Speaker Kevin McCarthy (R-CA) said an impeachment inquiry of President Biden is a “natural step forward” when Congress returns from its August recess, and an official inquiry will provide Congress with the “apex of legal power” to gather more information.
- House Foreign Affairs Chair Michael McCaul (R-TX) said he anticipates that the Chinese government is giving money to Biden’s reelection campaign to influence policy.
- Why It Matters: McCarthy claimed that Democrats in Congress have approached him with concerns over the connections the House probe has uncovered between President Biden and Hunter’s business deals. As the connections become more difficult to deny, impeachment could be the catalyst for Biden to withdraw his reelection effort ahead of 2024 to allow Democrats to choose an alternative like California Governor Gavin Newsom. – R.C.
- (3) CHINA REMAINS EMBEDDED IN U.S. SUPPLY CHAINS DESPITE “DE-RISKING”: According to a paper presented at the Federal Reserve’s annual Jackson Hole conference, indirect supply-chain links between China and the U.S. remain intact despite attempts by the Biden administration to de-risk the U.S. economy by shifting imports to Vietnam and Mexico.
- Commerce Secretary Gina Raimondo started a four-day visit to meet with Chinese counterparts today.
- Why It Matters: The Biden administration’s official stance has been to de-risk the U.S. economy from China and increase the technological lead the U.S. has over China by targeting the Chinese tech sector. However, according to the paper presented at the Jackson Hole conference, China has been able to mitigate de-risking by shifting exports to the same third-party countries the U.S. has shifted imports to, outmaneuvering any attempt at decoupling the U.S. and Chinese economies. – R.C.
- (4) ZOMBIE ALERT: DISTRESSED COMPANIES HIT NEW HIGHS: The number of financially distressed or “zombie” companies is now three times higher than in 2008, according to data from Morgan Stanley and other financial analysts.
- Zombie companies earn just enough money to continue operating, but these businesses can’t pay off their debt.
- Rising interest rates make it even harder for zombie companies to survive.
- Why It Matters: This is yet another sign that we could be approaching another 2008-style financial crisis and recession. But instead of residential real estate causing the crash, commercial real estate and failing zombie companies may be the culprits this time. – H.B.
- (5) BIDEN CONCERNED AFTER UAW VOTES TO AUTHORIZE STRIKE: President Biden said he was concerned about a work stoppage by United Auto Workers (UAW) union members after they voted to authorize union leadership to call for a strike.
- The UAW contract with General Motors, Ford, and Stellantis is set to expire on 14 September, and the union has expressed concerns over the Biden administration’s electric vehicle push.
- Over 145,000 workers would walk off the job if the strike happens.
- Why It Matters: A possible UAW strike will hit right as Congress is working to avert a government shutdown by 01 October, and a work stoppage could cost the companies $5 billion after ten days. A strike could divert the Biden administration’s focus away from any shutdown negotiations, making it more difficult to address both crises. – R.C.
- (6) MEXICAN LEFTISTS CALL FOR SUPREME COURT DIRECT ELECTIONS: Mexican President Andrés Manuel López Obrador (AMLO) and his ruling leftist Morena Party are calling for direct elections for the country’s Supreme Court justices.
- AMLO’s internecine fighting continues as he and other Morena party officials accuse the Supreme Court of attempting to remove him from power.
- They say that the court must be accountable to the people and, as such, should be elected by popular vote instead of being appointed to 15-year terms.
- Why It Matters: AMLO has called for judicial reform, including a major overhaul of the Supreme Court. As long as Morena maintains popularity and influence over the electoral process, direct elections could remake the court’s more conservative positions. This would be another step towards one-party rule and Mexico’s socialist transformation. – M.S.
- (7) SAUDIS PLAY CHINA, RUSSIA, FRANCE AGAINST U.S. IN NUCLEAR BID: The Kingdom of Saudi Arabia is considering alternative bids from China, Russia, and France to develop domestic nuclear facilities, including those used to enrich uranium.
- U.S. National Security Adviser Jake Sullivan said the Biden administration would ask the International Atomic Energy Agency (IAEA) for an opinion on nuclear cooperation with Saudi Arabia.
- Why It Matters: With the move away from U.S. influence and towards BRICS, the Saudis may have enough leverage to get concessions from the Biden administration on nuclear technology. This could be an opening salvo in the nuclearization of the Arabian Gulf and the Gulf Cooperation Council states.– R.C.
- (8) CHINA AND SINGAPORE INCREASE MILITARY TIES: China and Singapore will conduct joint military exercises over the next two weeks.
- The military exercises will take place during Singapore’s first presidential election in over a decade.
- The joint training event will cover hostage rescue operations and tactical coordination between Singapore and Chinese military commands.
- Why It Matters: Singapore sits in a strategic location near the Malacca Straits, an important passage for tanker ships delivering oil to China from the Arabian Gulf. In recent months, China appears to be focusing on increasing diplomatic, economic, and military ties with nations that control access to supply chain choke points like the Malacca Straits, Panama Canal, and Straits of Hormuz. – M.M.
- (9) UKRAINE MILITARY FORCES TAKE KEY TERRAIN: Ukrainian military forces took the key village of Robotine in a bloody fight with Russian forces over the weekend.
- Robotine was destroyed in the fighting but is considered key terrain to access Russian defensive positions south of nearby Verbove.
- Russian forces appear to be shifting reserves to the area to counterattack.
- Why It Matters: This is the first significant breakthrough of the Russian defensive belt of fortifications. Ukraine achieved this by attacking en masse with brigade-sized units, something it had failed to do to date. The Ukrainian effort signals an all-out attempt to salvage the counteroffensive. Expect continued heavy fighting in this area as this could become a make-or-break defensive stand for Russian forces in the Zaporizhia-Donetsk region. – 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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