Good morning. Here’s your Early Warning for Wednesday, 06 February 2019.
White House
The President is scheduled to announce the next World Bank president, deliver a speech to the Ministers of the Global Coalition to Defeat ISIS, and then has dinner with the National Prayer Breakfast host committee.
9: The number of days that the Trump administration and the Congress have to reach a border wall funding agreement before a potential shutdown or national emergency declaration.
China trade: U.S. chief negotiator Robert Lighthizer and Treasury Secretary Steve Mnuchin are headed to Beijing next week to continue work on a trade deal ahead of new tariffs sent to go into effect on 01 March.
State Department
Secretary Pompeo is scheduled to host a Syria Small Group Ministerial meeting, meet with the French foreign minister, Jordanian foreign minister, and then the Moroccan foreign minister.
Defense Department
Acting Defense Secretary Patrick Shanahan has no publicly scheduled events.
These are the last publicly reported locations of deployed carrier groups. Conflict requiring an aircraft carrier/carrier strike group does not appear imminent.
The Abraham Lincoln (CVN-72) is off the coast of Virginia for pre-deployment training. The Lincoln will rejoin the Indo-Pacific Command once it re-bases to San Diego, CA.
The John Stennis (CVN-74) was last reported as in the Java Sea.
The Ronald Reagan (CVN-76) is forward deployed to Yokosuka, Japan.
Congress
Significant House Activity:
- Evaluation of the DoD Counterterrorism Approach (Armed Services)
- U.S. Policy in the Arabian Peninsula (Foreign Affairs)
- Preventing Gun Violence: A Call to Action (Judiciary)
- Strengthening Ethics Rules for the Executive Branch (Oversight)
- Worldwide Threat Assessment (Appropriations Subcommittee on Defense)
Significant Senate Activity:
- Examining Financial Security in Retirement (Aging)
- Examining U.S. Army Readiness (Armed Services Subcommittee on Readiness)
* Only events pertinent to national security are listed. Significant reporting will appear in this week’s Strategic and National Intelligence reports
Economy/Finance
Lots of information about the Fed is out this morning, and much of it provides some insight into the future of the next economic downturn. The Fed is set to implement another round of stress tests on banks this year to see how banks can respond to harsher economic conditions. Banks will face a simulated 10 percent unemployment rate — the highest yet — and falling commercial and house real estate prices, while providing a plan to maintain lending despite a series of loan defaults. Additionally, this year’s stress test will assume -9.4 percent real GDP growth, which is the worst contraction rate since the tests began. Real messy stuff for the banks, which will respond to the tests by 05 April. The results are expected to be published in June.
Meanwhile, the IMF proposed recently that it could have two different interest rates for the next downturn — one rate for cash held by consumers and one for electronic money held by banks on digital balance sheets. By having two rates, the IMF could impose negative interest on electronic money held by banks, while stores and businesses could have separate prices for electronic money and cash purchases. “This dual local currency system would allow the central bank to implement as negative an interest rate as necessary for countering a recession, without triggering any large-scale substitutions into cash,” wrote one IMF economist. Take away: the next economic downturn may be so troubling that the IMF resorts to these type of interest rate acrobatics to keep countries afloat.
Back to the Fed, the Federal Reserve Bank of San Francisco published its most recent Economic Letter, in which they argue that negative interest rates could have sped up the post-recession recovery. [source] This letter signals the potential for the Fed to pursue negative interest rates during the next recession, which may now be more likely considering that the Fed doesn’t expect to raise the federal funds rate any time soon. The Fed has traditionally cut interest rates by three percent during a recession in order to spur growth. The federal funds rate right now is 2.4 percent, just short of the three percent mark that has to be cut during the next recession. With investors and the markets (and the president) responding negatively to recent interest rate hikes, the Fed will have a tough time moving interest rates higher unless the economy begins to overheat again. Since economic growth in 2019 is widely seen as starting to slow, maybe even the Federal Reserve doesn’t how much higher interest rates will go, if any higher at all. And that leaves the Fed with less than three percent cuts that it’s traditionally required. Going sub-zero looks like an option, which could spark a rush to cash and other stores of value that don’t lose purchasing power due to negative interest rates.
Far Left Daily
“So if a bunch of disinformation is used to manipulate public opinion by pushing … oh, let’s just say stories about George Soros being a Nazi and a baby killer reptilian, that’s an attempt to silence him and his supporters and thus it now ceases to be free speech.” – Brooke Binkowski, former Snopes.com editor
“I liked parts of Trump’s State of the Union, then I remembered his presidency.” – Ezra Klein, editor at Vox
What I’m Looking at this Morning
Russia plans new missile systems to counter U.S. by 2021
China to build four nuclear aircraft carriers to catch U.S. Navy
Notable Quotable
“The second potentially gigantic problem is that large, diverse, secular democracies are inherently unstable, inherently prone to division unless there are sufficient “centripetal” forces pulling toward the center (such as having a shared language, shared rituals and values, and high trust in the basic political and economic institutions of the country)… I predict that by 2030 we will see the spectacular political collapse or geographical division of more than one Western democracy.” – Jonathan Haidt, professor at New York University