Tuesday, June 30, 2020

Meijer Stops Accepting Cash As Nationwide Coin Shortage Erupts

From Zero Hedge:

We recently penned a piece on a developing nationwide coin shortage sparked by the virus pandemic. As a result of the shortage, at least one major supermarket chain has removed the ability to pay in cash at self-scan checkout machines. 
Meijer Inc., a supermarket chain based in the Midwest, with corporate headquarters in Walker, Michigan, announced last Friday, that self-scan checkout machines at 250 supercenters would only accept credit or debit cards, SNAP and EBT cards, and gift cards.
"While we understand this effort may be frustrating to some customers," spokesman Frank Guglielmi told ABC12 News Team. "It's necessary to manage the impact of the coin shortage on our stores."
Fed Chair Powell admitted to lawmakers last week that The Fed has been rationing coins as the circulation of coins across the US economy ground to a halt due to the pandemic.
"What's happened is that with the partial closure of the economy, the flow of coins through the economy ... it's kind of stopped," Powell told lawmakers.
He said the shortage was due to the mass business closures that prevented people from spending their coins, as well as a lack of places that are open where people can trade coins for paper bills. 
"We've been aware of it, we're working with the Mint to increase supply, we're working with the reserve banks to get the supply to where it needs to be," Powell said, adding he expected the problem to be temporary.
Americans Googling "coin shortage" started to erupt in the back half of June and has since hit a record high. Mainly people in Midwest states are searching for the search term. 
Google search "coin shortage" shows the issue isn't limited to Meijer stores but is widespread. 
Social media users report the shortage is happening at many big-box retailers. 

Meijer not accepting cash at self check out due to coin shortagehttps://t.co/eHL0nUqAqc
— Long Haired Hippie Rebel 🕉 (@lbox327) June 30, 2020
Is this a sly move to ban cash transactions in favor of credit cards under the guise of a coronavirus-related issue? 

    "Red Flags Galore": Companies Sold A Mindblowing $113 Billion In Stock In Q2

    From Zero Hedge

    When it comes to bearish market flow red flags, aggressive selling of stock by corporate insiders is traditionally viewed as the biggest red flag - after all nobody knows the prospects for their companies better than the people who run them - followed closely by companies selling stock. The logic is simple: why sell today if you believe you may get a better price tomorrow.The answer is simple: you don't, and instead you rush to lock in gains afforded by the market today.
    In which case, it's "red flags galore" because as the following chart from Goldman's head of European Equity Sales, Mark Wilson, shows companies haven't sold this much stock in a single quarter in... well, forever.
    According to Bloomberg data, secondary offerings in the U.S. raised $113 billion in the second quarter, the most on record. The nearly 400 deals that priced this quarter is also the most ever.
    As Goldman adds, "we’re about to close out another record month of global equity issuance, with June set to eclipse the recent record set in May; the numbers (>$230b of supply in 7 weeks), and the market’s ability to absorb this sizeable supply, have been impressive (the quantum of global supply vs prior peak periods shown in the 1st chart; US supply vs recent years trend shown in 2nd chart)"
    Following up on this staggering pace of equity sales, Bloomberg writes that "the record-high pace of secondary offerings that took hold in the second quarter is poised to continue into the summer" as share sales by U.S.-listed firms and their top holders raised the most money and happened the most frequently of any other quarter on record.
    With coronavirus shutdowns creating a sudden need for cash, issuers found an opportunity in a stock market that came roaring back from depths of the selloff in March. The paradox, of course, is that companies dumped stocks - with buybacks largely dormant - to a market dominated by (mostly young) daytraders who were so eager to lap anything up they almost bought an equity offering of worthless stock by bankrupt Hertz, another unprecedented event.
    And in recent weeks activity has continued apace, with Bloomberg predicting that this promises big things for the third quarter as Covid-19 continues to rattle the economy. Convertible bond issuance also surged this quarter. Those deals amounted to more than triple the cash raised in the second quarter of 2019 as some companies needing money looked to minimize the impact of dilution while capitalizing on lower rates.
    It's not just companies that have benefited from the unprecedented demand for equities: for bankers, these deals have been a helpful avenue to recoup business lost to the slowdown in initial public offerings and M&A activity.And all of this was, of course, started by the Fed which unleashed trillions in liquidity, including buying corporate bonds and ETFs - the Fed is now a Top 5 shareholder in some of the biggest bond ETFs...
    ... all under the convenient lie that it is laboring on behalf of the US middle class.

    Saturday, June 27, 2020

    Meet BlackRock, the New Great Vampire Squid

    From UNZ Review:

    BlackRock is a global financial giant with customers in 100 countries and its tentacles in major asset classes all over the world; and it now manages the spigots to trillions of bailout dollars from the Federal Reserve. The fate of a large portion of the country’s corporations has been put in the hands of a megalithic private entity with the private capitalist mandate to make as much money as possible for its owners and investors; and that is what it has proceeded to do.
    To most people, if they are familiar with it at all, BlackRock is an asset manager that helps pension funds and retirees manage their savings through “passive” investments that track the stock market. But working behind the scenes, it is much more than that. BlackRock has been called “the most powerful institution in the financial system,” “the most powerful company in the world” and the “secret power.” It is the world’s largest asset manager and “shadow bank,” larger than the world’s largest bank (which is in China), with over $7 trillion in assets under direct management and another $20 trillion managed through its Aladdin risk-monitoring software. BlackRock has also been called “the fourth branch of government” and “almost a shadow government”, but no part of it actually belongs to the government. Despite its size and global power, BlackRock is not even regulated as a “Systemically Important Financial Institution” under the Dodd-Frank Act, thanks to pressure from its CEO Larry Fink, who has long had “cozy” relationships with government officials.
    BlackRock’s strategic importance and political weight were evident when four BlackRock executives, led by former Swiss National Bank head Philipp Hildebrand, presented a proposal at the annual meeting of central bankers in Jackson Hole, Wyoming, in August 2019 for an economic reset that was actually put into effect in March 2020. Acknowledging that central bankers were running out of ammunition for controlling the money supply and the economy, the BlackRock group argued that it was time for the central bank to abandon its long-vaunted independence and join monetary policy (the usual province of the central bank) with fiscal policy (the usual province of the legislature). They proposed that the central bank maintain a “Standing Emergency Fiscal Facility” that would be activated when interest rate manipulation was no longer working to avoid deflation. The Facility would be deployed by an “independent expert” appointed by the central bank.
    The COVID-19 crisis presented the perfect opportunity to execute this proposal in the US, with BlackRock itself appointed to administer it. In March 2020, it was awarded a no-bid contract under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to deploy a $454 billion slush fund established by the Treasury in partnership with the Federal Reserve. This fund in turn could be leveraged to provide over $4 trillion in Federal Reserve credit. While the public was distracted with protests, riots and lockdowns, BlackRock suddenly emerged from the shadows to become the “fourth branch of government,” managing the controls to the central bank’s print-on-demand fiat money. How did that happen and what are the implications?
    Rising from the Shadows
    BlackRock was founded in 1988 in partnership with the Blackstone Group, a multinational private equity management firm that would become notorious after the 2008-09 banking crisis for snatching up foreclosed homes at firesale prices and renting them at inflated prices. BlackRock first grew its balance sheet in the 1990s and 2000s by promoting the mortgage-backed securities (MBS) that brought down the economy in 2008. Knowing the MBS business from the inside, it was then put in charge of the Federal Reserve’s “Maiden Lane” facilities. Called “special purpose vehicles,” these were used to buy “toxic” assets (largely unmarketable MBS) from Bear Stearns and American Insurance Group (AIG), something the Fed was not legally allowed to do itself.
    BlackRock really made its fortunes, however, in “exchange traded funds” (ETFs). It gained trillions in investable assets after it acquired the iShares series of ETFs in a takeover of Barclays Global Investors in 2009. By 2020, the wildly successful iShares series included over 800 funds and $1.9 trillion in assets under management.
    Exchange traded funds are bought and sold like shares but operate as index-tracking funds, passively following specific indices such as the S&P 500, the benchmark index of America’s largest corporations and the index in which most people invest. Today the fast-growing ETF sector controls nearly half of all investments in US stocks, and it is highly concentrated. The sector is dominated by just three giant American asset managers – BlackRock, Vanguard and State Street, the “Big Three” – with BlackRock the clear global leader. By 2017, the Big Three together had become the largest shareholder in almost 90% of S&P 500 firms, including Apple, Microsoft, ExxonMobil, General Electric and Coca-Cola. BlackRock also owns major interests in nearly every mega-bank and in major media.
    In March 2020, based on its expertise with the Maiden Lane facilities and its sophisticated Aladdin risk-monitoring software, BlackRock got the job of dispensing Federal Reserve funds through eleven “special purpose vehicles” authorized under the CARES Act. Like the Maiden Lane facilities, these vehicles were designed to allow the Fed, which is legally limited to purchasing safe federally-guaranteed assets, to finance the purchase of riskier assets in the market.
    Blackrock Bails Itself Out
    The national lockdown left states, cities and local businesses in desperate need of federal government aid. But according to David Dayen in The American Prospect, as of May 30 (the Fed’s last monthly report), the only purchases made under the Fed’s new BlackRock-administered SPVs were ETFs, mainly owned by BlackRock itself. Between May 14 and May 20, about $1.58 billion in ETFs were bought through the Secondary Market Corporate Credit Facility (SMCCF), of which $746 million or about 47% came from BlackRock ETFs. The Fed continued to buy more ETFs after May 20, and investors piled in behind, resulting in huge inflows into BlackRock’s corporate bond ETFs.
    In fact, these ETFs needed a bailout; and BlackRock used its very favorable position with the government to get one. The complicated mechanisms and risks underlying ETFs are explained in an April 3 article by business law professor Ryan Clements, who begins his post:
    Exchange-Traded Funds (ETFs) are at the heart of the COVID-19 financial crisis Over forty percent of the trading volume during the mid-March selloff was in ETFs ….
    The ETFs were trading well below the value of their underlying bonds, which were dropping like a rock. Some ETFs were failing altogether. The problem was something critics had long warned of: while ETFs are very liquid, trading on demand like stocks, the assets that make up their portfolios are not. When the market drops and investors flee, the ETFs can have trouble coming up with the funds to settle up without trading at a deep discount; and that is what was happening in March.
    According to a May 3 article in The National, “The sector was ultimately saved by the US Federal Reserve’s pledge on March 23 to buy investment-grade credit and certain ETFs. This provided the liquidity needed to rescue bonds that had been floundering in a market with no buyers.”
    Prof. Clements states that if the Fed had not stepped in, “a ‘doom loop’ could have materialized where continued selling pressure in the ETF market exacerbated a fire-sale in the underlying [bonds], and again vice-versa, in a procyclical pile-on with devastating consequences.” He observes:
    There’s an unsettling form of market alchemy that takes place when illiquid, over-the-counter bonds are transformed into instantly liquid ETFs. ETF “liquidity transformation” is now being supported by the government, just like liquidity transformation in mortgage backed securities and shadow banking was supported in 2008.
    Working for Whom?
    BlackRock got a bailout with no debate in Congress, no “penalty” interest rate of the sort imposed on states and cities borrowing in the Fed’s Municipal Liquidity Facility, no complicated paperwork or waiting in line for scarce Small Business Administration loans, no strings attached. It just quietly bailed itself out.
    It might be argued that this bailout was good and necessary, since the market was saved from a disastrous “doom loop,” and so were the pension funds and the savings of millions of investors. Although BlackRock has a controlling interest in all the major corporations in the S&P 500, it professes not to “own” the funds. It just acts as a kind of “custodian” for its investors — or so it claims. But BlackRock and the other Big 3 ETFs vote the corporations’ shares; so from the point of view of management, they are the owners. And as observed in a 2017 article from the University of Amsterdam titled “These Three Firms Own Corporate America,” they vote 90% of the time in favor of management. That means they tend to vote against shareholder initiatives, against labor, and against the public interest. BlackRock is not actually working for us, although we the American people have now become its largest client base.
    In a 2018 review titled “Blackrock – The Company That Owns the World”, a multinational research group called Investigate Europe concluded that BlackRock “undermines competition through owning shares in competing companies, blurs boundaries between private capital and government affairs by working closely with regulators, and advocates for privatization of pension schemes in order to channel savings capital into its own funds.”
    Daniela Gabor, Professor of Macroeconomics at the University of Western England in Bristol, concluded after following a number of regulatory debates in Brussels that it was no longer the banks that wielded the financial power; it was the asset managers. She said:
    We are often told that a manager is there to invest our money for our old age. But it’s much more than that. In my opinion, BlackRock reflects the renunciation of the welfare state. Its rise in power goes hand-in-hand with ongoing structural changes; in finance, but also in the nature of the social contract that unites the citizen and the state.
    That these structural changes are planned and deliberate is evident in BlackRock’s August 2019 white paper laying out an economic reset that has now been implemented with BlackRock at the helm.
    Public policy is made today in ways that favor the stock market, which is considered the barometer of the economy, although it has little to do with the strength of the real, productive economy. Giant pension and other investment funds largely control the stock market, and the asset managers control the funds. That effectively puts BlackRock, the largest and most influential asset manager, in the driver’s seat in controlling the economy.
    As Peter Ewart notes in a May 14 article on BlackRock titled “Foxes in the Henhouse,” today the economic system “is not classical capitalism but rather state monopoly capitalism, where giant enterprises are regularly backstopped with public funds and the boundaries between the state and the financial oligarchy are virtually non-existent.”
    If the corporate oligarchs are too big and strategically important to be broken up under the antitrust laws, rather than bailing them out they should be nationalized and put directly into the service of the public. At the very least, BlackRock should be regulated as a too-big-to-fail Systemically Important Financial Institution. Better yet would be to regulate it as a public utility. No private, unelected entity should have the power over the economy that BlackRock has, without a legally enforceable fiduciary duty to wield it in the public interest.
    Ellen Brown is an attorney, chair of the Public Banking Institute, and author of thirteen books including Web of DebtThe Public Bank Solution, and Banking on the People: Democratizing Money in the Digital Age. She also co-hosts a radio program on PRN.FM called “It’s Our Money.” Her 300+ blog articles are posted at EllenBrown.com.

    Peter Turchin: How 'elite overproduction' and 'lawyer glut' could ruin the U.S.

    This article was first published in Bloomberg View on Nov. 20, 2013.

    Complex human societies, including our own, are fragile. They are held together by an invisible web of mutual trust and social cooperation. This web can fray easily, resulting in a wave of political instability, internal conflict and, sometimes, outright social collapse.

    Analysis of past societies shows that these destabilizing historical trends develop slowly, last many decades, and are slow to subside. The Roman Empire, Imperial China and medieval and early-modern England and France suffered such cycles, to cite a few examples. In the U.S., the last long period of instability began in the 1850s and lasted through the Gilded Age and the “violent 1910s.”

    We now see the same forces in the contemporary U.S. Of about 30 detailed indicators I developed for tracing these historical cycles (reflecting popular well-being, inequality, social cooperation and its inverse, polarization and conflict), almost all have been moving in the wrong direction in the last three decades.

    Every year U.S. law schools churn out about 25,000 “surplus” lawyers, many of whom are in debt. A large number hope to enter politics.
    The roots of the current American predicament go back to the 1970s, when wages of workers stopped keeping pace with their productivity. The two curves diverged: Productivity continued to rise, as wages stagnated. The “great divergence” between the fortunes of the top 1 percent and the other 99 percent is much discussed, yet its implications for long-term political disorder are underappreciated. Battles such as the recent government shutdown are only one manifestation of what is likely to be a decade-long period.

    How does growing economic inequality lead to political instability? Partly this correlation reflects a direct, causal connection. High inequality is corrosive of social cooperation and willingness to compromise, and waning cooperation means more discord and political infighting. Perhaps more important, economic inequality is also a symptom of deeper social changes, which have gone largely unnoticed.

    Increasing inequality leads not only to the growth of top fortunes; it also results in greater numbers of wealth-holders. The “1 percent” becomes “2 percent.” Or even more. There are many more millionaires, multimillionaires and billionaires today compared with 30 years ago, as a proportion of the population.

    Let’s take households worth $10 million or more (in 1995 dollars). According to the research by economist Edward Wolff, from 1983 to 2010 the number of American households worth at least $10 million grew to 350,000 from 66,000.

    Rich Americans tend to be more politically active than the rest of the population. They support candidates who share their views and values; they sometimes run for office themselves. Yet the supply of political offices has stayed flat (there are still 100 senators and 435 representatives — the same numbers as in 1970). In technical terms, such a situation is known as “elite overproduction.”

    A related sign is the overproduction of law degrees. From the mid-1970s to 2011, according to the American Bar Association, the number of lawyers tripled to 1.2 million from 400,000. Meanwhile, the population grew by only 45 percent. Economic Modeling Specialists Intl. recently estimated that twice as many law graduates pass the bar exam as there are job openings for them. In other words, every year U.S. law schools churn out about 25,000 “surplus” lawyers, many of whom are in debt. A large number of them go to law school with an ambition to enter politics someday.

    Don’t hate them for it — they are at the mercy of the same large, impersonal social forces as the rest of us. The number of newly minted MBAs has expanded even faster than law degrees.

    So why is it important that we have a multitude of desperate law school graduates and many more politically ambitious rich than 30 years ago?

    Past waves of political instability, such as the civil wars of the late Roman Republic, the French Wars of Religion and the American Civil War, had many interlinking causes and circumstances unique to their age. But a common thread in the eras we studied was elite overproduction. The other two important elements were stagnating and declining living standards of the general population and increasing indebtedness of the state.

    Elite overproduction generally leads to more intra-elite competition that gradually undermines the spirit of cooperation, which is followed by ideological polarization and fragmentation of the political class. This happens because the more contenders there are, the more of them end up on the losing side. A large class of disgruntled elite-wannabes, often well-educated and highly capable, has been denied access to elite positions. Consider the antebellum U.S.

    From 1830 to 1860 the number of New Yorkers and Bostonians with fortunes of at least $100,000 (they would be multimillionaires today) increased fivefold. Many of these new rich (or their sons) had political ambitions. But the government, especially the presidency, Senate and Supreme Court, was dominated by the Southern elites. As many Northerners became frustrated and embittered, the Southerners also felt the pressure and became increasingly defensive.

    Slavery had been a divisive force since the inception of the Republic. For 70 years, the elites always managed to find a compromise. During the 1850s, however, intra-elite cooperation unraveled. On several occasions Congress was on the brink of a general shootout. (As one senator noted about his “armed and dangerous” colleagues, “The only persons who do not have a revolver and a knife are those who have two revolvers.”)

    Although slavery was the overriding issue dividing the elites, they also differed over tariffs and cultural attitudes toward immigration. In the decade before the Civil War these centrifugal forces tore apart the two-party system. The Democratic Party split into its Northern and Southern factions, while the Whigs simply disintegrated.

    Slavery was an absolute evil and was going to be abolished, sooner or later. But its abolition didn’t need to result in hundreds of thousands of Civil War deaths. (About the same time, Russia banned serfdom without a civil war. The Russian Revolution came 50 years later — when Russia was hit by its own elite overproduction.)

    This U.S. historical cycle didn’t end with the cataclysm of the Civil War. Huge fortunes were made during the Gilded Age and economic inequality reached a peak, unrivaled even today. The number of lawyers tripled from 1870 to 1910. And the U.S. saw another wave of political violence, spiking in 1919–21.

    This was the worst period of political instability in U.S. history, barring the Civil War. Class warfare took the form of violent labor strikes. At one point 10,000 miners armed with rifles were battling against thousands of company troops and sheriff deputies. There was a wave of terrorism by labor radicals and anarchists. Race issues intertwined with class, leading to the Red Summer of 1919, with 26 major riots and more than 1,000 casualties. It was much, much worse than the 1960s and early 1970s, a period many of us remember well because we lived through it.

    Now, as during the 1850s, many of the political elites disdain compromise and are instead inclined to fight to the bitter end.
    The spike in violence then was relatively mild, perhaps because it fell in an era known as the Great Compression. Economic inequality had started to decline after 1930. The difference between the incomes of the rich and poor was compressed. Elite overproduction was reversed: The number of millionaires (in 1900 dollars, $1 million equals almost $30 million today) declined in absolute terms (while population continued to grow).

    The Great Compression unraveled in the late 1970s, when workers’ wages stagnated. We are living in a new cycle of growing inequality, elite overproduction, ideological polarization and political fragmentation.

    Today we are seeing not just a bitter struggle between the Democrats and Republicans; the Republican Party itself is fragmenting. Now, as during the 1850s, many of the political elites disdain compromise and are instead inclined to fight to the bitter end. Thankfully our senators haven’t armed themselves with revolvers and Bowie knives.

    We should expect many years of political turmoil, peaking in the 2020s. And because complex societies are much more fragile than we assume, there is a chance of a catastrophic failure of some kind, with a default on U.S. government bonds being among the less frightening possibilities.

    Of course, catastrophe isn’t preordained. History shows a real indeterminacy about the routes societies follow out of instability waves. Some end with social revolutions, in which the rich and powerful are overthrown. This is what happened to the Southern elites — decimated in the Civil War, beggared when their main assets, slaves, were freed, and excluded from national power in Washington. In other cases, recurrent civil wars result in a permanent fragmentation of the state and society.

    In some cases, however, societies come through relatively unscathed, by adopting a series of judicious reforms, initiated by elites who understand that we are all in this boat together. This is precisely what happened in the U.S. in the early 20th century. Several legislative initiatives, which created the framework for cooperative relations among labor, employers and the government, were introduced during the Progressive Era and cemented in the New Deal.

    By introducing the Great Compression, these policies benefited society as a whole. They enabled it to overcome the challenges of the Great Depression, World War II and the Cold War, and to achieve the postwar prosperity. Whether we can follow such a trajectory again is largely up to our political and economic leaders. It will depend on all of us, rich and poor alike, recognizing the real dangers and acting to address them.

    Bloomberg View

    (Peter Turchin is the author, most recently, of “Ages of Discord: A Structural-Demographic Analysis of American History.”


    Escobar: The India-China, Himalayan Puzzle

    The Indo-China border is a strategic chessboard and it’s gotten way more complex...
    It was straight from an Orientalist romantic thriller set in the Himalayas: soldiers fighting each other with stones and iron bars in the dead of night on a mountain ridge over 4,000 meters high, some plunging to their deaths into a nearly frozen river and dying of hypothermia.
    In November 1996, China and India had agreed not to use guns along their 3,800 km-long border, known as the Line of Actual Control (LAC), which sports an occasional tendency to derail into a Line Out of Control.
    Yet this was not just another Himalayan scuffle. Of course there were echoes of the 1962 Sino-Indian war – which started pretty much the same way, leading Beijing to defeat New Delhi on the battlefield. But now the strategic chessboard is way more complex, part of the evolving 21st Century New Great Game.
    Indian army marching in 1962 war, during which Indian Air Force was not used. (Indian Defence Review)
    The situation had to be defused. Top military commanders from China and India finally met face to face this past weekend. And on Tuesday, Chinese Foreign Minister spokesman Zhao Lijian confirmed they “agreed to take necessary measures to promote a cooling of the situation.”
    The Indian Army concurred: “There was mutual consensus to disengage (…) from all frictions areas in Eastern Ladakh.”
    A day later, the breakthrough was confirmed at a videoconference meeting of the three foreign ministers of Russia, India and China, also known as the RICs: Sergey Lavrov, Subrahmanyam Jaishankar    and Wang Yi. President Vladimir Putin, Prime Minister Narendra Modi and President Xi Jinping Xi will meet in person on the sidelines of the G-20 summit in Saudi Arabia next November.
    And that will follow probably another videoconference special next month, in St. Petersburg, during the combined summits of the BRICS and the Shanghai Cooperation Organization (SCO.)

    So How Did We Get Here?

    Our Himalayan drama starts way back in October 1947, when the Maharaja of Kashmir signed an Instrument of Accession – joining the dominion of India in return for military support. As much as the Raj, Kashmir was also partitioned: West and North became Azad (“Free”) Kashmir and Gilgit-Baltistan, under Pakistan; the state of Jammu and Kashmir was to become an autonomous part of India; and significantly Aksai Chin, historically part of Tibet, became part of China.
    CIA map from 2002 showing traditional borders of Jammu and Kashmir. (CIA, Wikimedia Commons)
    On a personal level, this has always been among my top “roof of the world” travel/reporting areas. Not only for the unrivalled, breathtaking  geological apotheosis, but for the people – Hunzakut, Baltistanis, Kashmiris, Tibetans.
    Both Kashmirs – Pakistani and Indian – are majority Muslim. Everywhere you go you feel you’re in Central Asia, not India. Barren Aksai Chin is virtually population-free, apart from scattered military posts. Eastern Ladakh, historically and culturally, was part of the Tibetan plateau. The people are Buddhist, and speak a similar Tibetan dialect to the people of Aksai Chin.

    Modi’s Move

    The root of all contemporary strife is to be found less than a year ago, in August 2019. That’s when the Hindutva – Hindu nationalist, quasi-fascist – government led by Modi unilaterally revoked parts of the Indian constitution that established Jammu & Kashmir (J&K) as an autonomous region.
    Narendra Modi in 2008. (Norbert Schiller,World Economic Forum, Wikimedia Commons)
    Islamic J&K – heir to a long religious and cultural tradition – was deprived of a parliament and local government and de facto separated from Buddhist Ladakh and its very sensitive eastern border with China. They all fell under direct New Delhi control.
    J&K’s characteristics shielded it since 1947 from mass immigration by Hindus. That’s now gone. The game now, for New Delhi, is about engineering a demographic change, turning a majority-Muslim area into majority-Hindu.
    And even that might not be enough. For Home Minister Amit Shah, not only what the Hindutva describe as Pakistan-occupied Kashmir (PoK) but also Aksai Chin as part of J&K. They see the whole Kashmir Valley as an integral part of India.
    It’s easy to imagine how this goes down in Islamabad and Beijing.
    Add to it the interlocked strategic importance of the Indus river system – Pakistan’s main source of water: it starts in the J&K mountains. So it’s no wonder that for Islamabad, the whole province should be part of Pakistan, not India.
    Recently, the action across the Line of Actual Control has been breathless.
    India revamped the airfield of Daulet Beg Oldie (DBO), located on an old trade route through the Karakoram pass, and crucially only 9 km away from Aksai Chin. That happens to be right on India’s physical link to Xinjiang, and not Tibet.
    (PANONIAN, CC0, Wikimedia Commons)
    In parallel, India built the 255 km long Darbuk-Shayok-DBO road. This is an appraisal of what is innocently described as the single lane Indo-China border road. What it means in practice is that New Delhi now has more leeway to transport troops and military equipment across the LAC. No wonder Beijing interpreted it as an extra – unwanted – pressure on Aksai Chin.
    As India built a new military access road, they had no clue the Chinese had finished their own on Aksai Chin: Highway 219, which links ultra-strategic Tibet to Xinjiang. Highway 219 then links to the legendary Karakoram Highway – which starts in Kashgar, crosses the border and weaves all the way down to Islamabad.
    An important stretch of the Aksai Chin was in fact ceded to China by Islamabad in 1963 in exchange for financial and logistical support.
    Predictably there has been a steady patrolling/military buildup on both sides. There are as many as 225,000 Indian troops right behind the LAC. That is matched by an undisclosed number of very well-equipped Chinese troops. The Hindu showed satellite images  of Chinese movements at Galwan before the border clash. No less than three Chinese military sub-districts – subordinated to the military in Tibet and Xinjiang – were involved in the skirmishes in Galwan.

    It’s All About CPEC

    The China-Pakistan border at the Khunjerab pass and the area right to the south, the visually stunning Gilgit-Baltistan, happen to fall exactly into what the Indians call Pakistan-occupied Kashmir (PoK).
    Prime Minister Narendra Modi with Chinese President Xi Jinping. (Narendra Modi, Flickr)
    There’s absolutely no way Beijing would ever allow any sort of New Delhi regional adventurism. Especially because this is prime China-Pakistan Economic Corridor (CPEC) territory – one of the key nodes of the New Silk Roads, all the way to Islamabad and down to the port of Gwadar in the Indian Ocean.
    In the near future, Gwadar will have solidified its direct energy links to the Persian Gulf, and China may even expand them by building an oil/gas pipeline all the way to Xinjiang.
    Counteracting China’s New Silk Road nodes, we find, strategically, India’s ambiguous role in both the Quad (alongside the U.S., Japan and Australia) and the U.S. “Indo-Pacific” scheme — essentially a mechanism to contain China.
    In practice, and in the name of its own, self-described “strategic autonomy,” New Delhi is not a full member of the Quad. The Quad is such a fuzzy concept that even Japan and Australia are not exactly enthusiastic.
    U.S.-India defense “ties” are legion – but nothing really significant, apart from a self-defeating move by New Delhi to cut off oil imports from Iran. To appease Washington, New Delhi prodigiously hurt its own investments in the port of Chabahar — only 80 km away from Gwadar — which until recently was touted as the Indian Silk Road gateway to Afghanistan and Central Asia.
    Apart from that, we find – what else – threats: the Trump administration is furious that New Delhi is buying S-400 missile systems from Russia.

    Self-Reliance or Containment?

    China is India’s second-largest trade partner. Beijing imports around 5 percent of everything made in India, while New Delhi imports less than 1 percent of Chinese production.
    Madras regiment of Indian Army. (Mannat Sharma, CC BY 3.0, Wikimedia Commons)
    Only two months ago, in an address to the nation about Covid-19, Modi insisted on “self-reliant India” and “human centric globalization,” focused on local manufacturing, local markets and local supply chains.
    For all of Modi’s bluster, foreign adventurism is incompatible with India’s tradition of non-alignment – and it would divert much needed efforts towards “self-reliance.”
    There was a lot of expectation that India and Pakistan, becoming full-time members of the SCO, would defuse their myriad problems. That’s not what happened. Yet the SCO – along with the BRICS – is the way to go if India wants to become a significant player in the emerging multipolar world.
    Beijing is very much aware of imperial containment/encirclement strategies. There are more than 200 U.S. military bases in the Western Pacific. The New Silk Roads, or Belt and Road Initiative (BRI), boast no fewer than seven connectivity corridors – including the Polar Silk Road. Five of these are overland. The only one including India is BCIM (Bangladesh-China-India-Myanmar).
    If India wants out, BRI will keep rolling all the way to Bangladesh. Same with the Regional Comprehensive Economic Partnership (RCEP) negotiated by 15 Asia-Pacific nations. They want India in. New Delhi is paranoid that opening up its markets will balloon the trade deficit with China. With or without India, RCEP will also keep rolling, alongside BRI and CPEC.
    Quite a few among upper caste ruling class Hindus cannot see that they are being played to the hilt, full time, by the imperial masters as a war front against China.
    Yet Modi will have to play realpolitik – and realize that India is not a priority for Washington: rather a pawn in a full spectrum dominance, “existential threat” battle against China, Russia and Iran, which happen to be the three key nodes of Eurasia integration.
    Washington will persist in treating New Delhi as a mere pawn in the Indo-Pacific drive for China containment. India – in theory very proud of its tradition of diplomatic independence – would rather use its ties with the U.S. to counterpunch China’s power across Southeast Asia and as a form of deterrence against Pakistan.
    Yet Modi cannot possibly bet the farm on the Trump administration following his lead. The only way out is to sit down and talk to his BRICS/SCO partner Xi: next month in St. Petersburg and in November in Riyadh.