US is Becoming a 'Developing Country' on Global Rankings That Measure Democracy, Inequality

Summary:

The United States may regard itself as a "leader of the free world," but an index of development released in July 2022 places the country much farther down the list.

In its global rankings, the United Nations Office of Sustainable Development dropped the U.S. to 41st worldwide, down from its previous ranking of 32nd. Under this methodology – an expansive model of 17 categories, or "goals," many of them focused on the environment and equity – the U.S. ranks between Cuba and Bulgaria. Both are widely regarded as developing countries.

The U.S. is also now considered a "flawed democracy," according to The Economist's democracy index.

As a political historian who studies U.S. institutional development, I recognize these dismal ratings as the inevitable result of two problems. Racism has cheated many Americans out of the health care, education, economic security and environment they deserve. At the same time, as threats to democracy become more serious, a devotion to "American exceptionalism" keeps the country from candid appraisals and course corrections.

'The other America'

The Office of Sustainable Development's rankings differ from more traditional development measures in that they are more focused on the experiences of ordinary people, including their ability to enjoy clean air and water, than the creation of wealth.

So while the gigantic size of the American economy counts in its scoring, so too does unequal access to the wealth it produces. When judged by accepted measures like the Gini coefficient, income inequality in the U.S. has risen markedly over the past 30 years. By the Organization for Economic Cooperation and Development's measurement, the U.S. has the biggest wealth gap among G-7 nations.

These results reflect structural disparities in the United States, which are most pronounced for African Americans. Such differences have persisted well beyond the demise of chattel slavery and the repeal of Jim Crow laws.

Scholar W.E.B. Du Bois first exposed this kind of structural inequality in his 1899 analysis of Black life in the urban north, "The Philadelphia Negro." Though he noted distinctions of affluence and status within Black society, Du Bois found the lives of African Americans to be a world apart from white residents: a "city within a city." Du Bois traced the high rates of poverty, crime and illiteracy prevalent in Philadelphia's Black community to discrimination, divestment and residential segregation – not to Black people's degree of ambition or talent.

More than a half-century later, with characteristic eloquence, Martin Luther King Jr. similarly decried the persistence of the "other America," one where "the buoyancy of hope" was transformed into "the fatigue of despair."

To illustrate his point, King referred to many of the same factors studied by Du Bois: the condition of housing and household wealth, education, social mobility and literacy rates, health outcomes and employment. On all of these metrics, Black Americans fared worse than whites. But as King noted, "Many people of various backgrounds live in this other America."

The benchmarks of development invoked by these men also featured prominently in the 1962 book "The Other America," by political scientist Michael Harrington, founder of a group that eventually became the Democratic Socialists of America. Harrington's work so unsettled President John F. Kennedy that it reportedly galvanized him into formulating a "war on poverty."

Kennedy's successor, Lyndon Johnson, waged this metaphorical war. But poverty bound to discrete places. Rural areas and segregated neighborhoods stayed poor well beyond mid-20th-century federal efforts.

In large part that is because federal efforts during that critical time accommodated rather than confronted the forces of racism, according to my research.

Across a number of policy domains, the sustained efforts of segregationist Democrats in Congress resulted in an incomplete and patchwork system of social policy. Democrats from the South cooperated with Republicans to doom to failure efforts to achieve universal health care or unionized workforces. Rejecting proposals for strong federal intervention, they left a checkered legacy of local funding for education and public health.

Today, many years later, the effects of a welfare state tailored to racism is evident — though perhaps less visibly so — in the inadequate health policies driving a shocking decline in average American life expectancy.

Declining democracy

There are other ways to measure a country's level of development, and on some of them the U.S. fares better.

The U.S. currently ranks 21st on the United Nations Development Program's index, which measures fewer factors than the sustainable development index. Good results in average income per person – $64,765 – and an average 13.7 years of schooling situate the United States squarely in the developed world.

Its ranking suffers, however, on appraisals that place greater weight on political systems.

The Economist's democracy index now groups the U.S. among "flawed democracies," with an overall score that ranks between Estonia and Chile. It falls short of being a top-rated "full democracy" in large part because of a fractured political culture. This growing divide is most apparent in the divergent paths between "red" and "blue" states.

Although the analysts from The Economist applaud the peaceful transfer of power in the face of an insurrection intended to disrupt it, their report laments that, according to a January 2022 poll, "only 55% of Americans believe that Mr. Biden legitimately won the 2020 election, despite no evidence of widespread voter fraud."

Election denialism carries with it the threat that election officials in Republican-controlled jurisdictions will reject or alter vote tallies that do not favor the Republican Party in upcoming elections, further jeopardizing the score of the U.S. on the democracy index.

Red and blue America also differ on access to modern reproductive care for women. This hurts the U.S. gender equality rating, one aspect of the United Nations' sustainable development index.

Since the Supreme Court overturned Roe v. Wade, Republican-controlled states have enacted or proposed grossly restrictive abortion laws, to the point of endangering a woman's health.

I believe that, when paired with structural inequalities and fractured social policy, the dwindling Republican commitment to democracy lends weight to the classification of the U.S. as a developing country.

American exceptionalism

To address the poor showing of the United States on a variety of global surveys, one must also contend with the idea of American exceptionalism, a belief in American superiority over the rest of the world.

Both political parties have long promoted this belief, at home and abroad, but "exceptionalism" receives a more formal treatment from Republicans. It was the first line of the Republican Party's national platform of 2016 and 2020 ("we believe in American exceptionalism"). And it served as the organizing principle behind Donald Trump's vow to restore "patriotic education" to America's schools.

In Florida, after lobbying by Republican Gov. Ron DeSantis, the state board of education in July 2022 approved standards rooted in American exceptionalism while barring instruction in critical race theory, an academic framework teaching the kind of structural racism Du Bois exposed long ago.

With a tendency to proclaim excellence rather than pursue it, the peddling of American exceptionalism encourages Americans to maintain a robust sense of national achievement – despite mounting evidence to the contrary.

Source: theconversation

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Owen Li

75bp at a minimum from the Riksbank

The 75 basis-point (bp) rate hike from the European Central Bank all but guarantees the same sized move from Sweden’s Riksbank on Tuesday – and if anything it could go even more aggressively. Partly that’s because the Riksbank has only one scheduled meeting left this year after this month, which is one less than most central banks. In that sense, it’s got to make each one count, especially given expectations for further aggressive ECB tightening in the near term.

But more importantly, core inflation has once again exceeded the Riksbank’s forecast. Core inflation came in over a percentage-point higher in August than policymakers had projected back in June.

This is coinciding with a jobs market that looks unusually tight. With low unemployment and wage growth at 3%, policymakers are focusing increasingly on the upcoming wage negotiations, which are due to lock in pay growth for the next three years. All the signs currently point to a more generous outcome for workers than the last set of negotiations in 2020.

Sweden’s Riksbank to match ECB’s 75bp rate hike on Tuesday_1

Core inflation has once again exceeded the Riksbank’s forecast

All of that means another 75bp hike in November also looks highly likely. Most members of the committee have been vocal about the need to get inflation lower, and indeed at least one member signalled they were willing to vote for 75bp in June had there been consensus for it.

For now, the bank also seems unperturbed by signs of weakness in the Swedish housing market, with Deputy Governor Martin Floden signalling in June that the fall in retail sales and house prices is a “necessary development”. Nevertheless, the housing market is highly sensitive to interest rate hikes and it’s a key risk to the economic outlook, not least given households’ record debt-to-income ratios. The Riksbank’s last monetary policy report accepted there was a risk of an abrupt fall in prices.

That - and the fact that we expect less ECB tightening than the market – suggests there is only so far the Riksbank can hike rates this cycle. We wouldn’t be surprised if, after a 75bp rate hike both this month and in November, the central bank stops there. That suggests a peak in the region of 2.25%, something we suspect the Riksbank’s new rate projection due on Tuesday will probably agree with.

SEK: Riksbank impact still contained

We recently published an update on our SEK view (Sweden: The krona’s recovery is delayed again), where we highlighted how downside risks for the krona were set to remain relatively high, and that a recovery will likely have to wait until next year given the challenges to the European economic outlook (among other reasons).

This remains our core view for the krona, regardless of our expectations for a 75bp rate hike by the Riksbank next week. This is because firstly, central bank decisions and policy messages have had a rather limited impact on EUR/SEK of late, and secondly because SEK’s high beta to global risk sentiment and Europe’s economic woes may keep appetite towards the krona limited for now.

Incidentally, markets are fully pricing in a 75bp rate hike by the Riksbank and this means that even on the day of the release, there may not be much room for a SEK rally. We expect EUR/SEK to stay around 10.70 in the coming weeks, with risks of retesting the 10.78 July high or even the 10.86 March high if the external environment continues to deteriorate.

Source：ING

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Devin

In 1947, during a tour of South Africa, on her 21st birthday, the young Princess Elizabeth made a speech that would define her 70 years as monarch. Her promise that "my whole life whether it be long or short shall be devoted to your service" became her lodestar. It guided her unstinting belief in the centrality of public service and the principle of duty.

In his first message to the nation, King Charles III reiterated those same words, understanding that his mother redefined how, in a parliamentary democracy, a constitutional monarchy must be steeped in the selfless, stoic, and politically detached public service that Queen Elizabeth II exemplified.

Never partisan, her wise, generous and shrewd presence and leadership by example have been at the heart of the United Kingdom's parliamentary democracy – and therefore of its politics – throughout my entire life.

I first saw the Queen when I was a child at primary school when she came to our town to open the new council offices. We lined the pavements, waved our flags and cheered.

Years later, during a visit to our Liverpool school for the blind this was the same Queen whom I was honored to welcome to my constituency; the same Queen who, throughout my 40 years since entering parliament in 1979, would tell us, in her Queens' Speeches, what legislation her government intended to lay before us; the same Queen who since her accession to the throne in 1952 has given Royal Assent to 3,500 Acts of Parliament; the same Queen who was advised by and gave advice to 15 prime ministers, from Winston Churchill to Liz Truss.

A baby born at the beginning of the week in which the Queen died will have already lived through a change of head of state and prime minister. That such a transition could take place in an orderly and peaceful manner tells us a great deal about the strength of a constitutional monarchy; about the stewardship of Queen Elizabeth II; and about the ground rules for good governance, she has bequeathed to King Charles III.

Direction and purpose

Democracy – in an age of authoritarian regimes, populists, ideologues and dictators – is a fragile thing. Buffeted in the headwinds of the pandemic, war, consequential economic instability and political extremism, our democracies are vulnerable to enemies, old and new.

In the face of such monumental challenges, which sometimes seem existential, a constitutional monarch has provided continuity, cohesion, courage, stability and strength. Vocational service and leadership can reorient relationships and attitudes.

Queen Elizabeth II's abiding belief in seeking the best was never seen more vividly than during her historic reconciling visit to Ireland in 2011. It was a watershed, bridge-building moment in British-Irish relations, which have been mired in so much bitterness, violence and tainted history. The lasting impact of that visit is evidenced in the many tributes to the Queen from the nationalist community in Ireland.

She insisted that we must "bow to the past, but not be bound by it," a view which would have been echoed by my late mother, born in County Mayo and whose first language was Irish.

This refusal to be bound by the past while honoring our traditions was not a new discovery. It was already there in her 1947 speech in Cape Town. She had the duty to steer the ship of state from its colonial and imperial past into the opportunities that a network of countries like the Commonwealth potentially offered all its member states.

She knew that to survive, the monarchy had to remain relevant and engaged.

The constitutional requirement of neutrality should not be confused with disinterest. Quite the reverse. She was intensely interested in the granular detail of issues and challenges affecting every part of her realm. Perhaps nowhere more so than Scotland. With constant attempts by separatists to break the Union, her gentle death in Scotland at Balmoral was like one final appeal from the monarch to sustain the Act of Union.

The outpouring of grief, whether in these islands or in those jurisdictions where she was head of state, or simply greatly admired – is deeply instructive about what a life of service can achieve.

This same intuitive approach has also redefined the United Kingdom's postimperial place in the world.

In her 1947 Cape Town Speech the young princess said we could no longer simply see the world through the eyes of William Pitt. She insisted we must embrace all people "whatever race they come from, and whatever language they speak."

She knew that by building on the best while embracing change would give the emerging democracies of the Commonwealth a common sense of direction and purpose.

Not unlike her belief in an evolving monarchy, she said that "an unwavering faith, a high courage, and a quiet heart," would make the Commonwealth "which we all love so dearly, an even grander thing – more free, more prosperous, more happy and a more powerful influence for good in the world – than it has been in the greatest days of our forefathers." Called to serve_1

Throughout her reign the Queen tirelessly promoted the Commonwealth and Britain's place in the world, visiting more than 100 countries, promoting commercial, diplomatic and strategic international relations.

From his mother, King Charles III has inherited this extraordinary network of nations.

The Commonwealth is home to almost a third of the world's population, comprising 2.4 billion people living in some 56 countries – an amazing legacy.

But whether at home or abroad, the watchword has been public service and duty. This was the vocation to which she knew she was called when she emphatically declared: "There is a motto which has been borne by many of my ancestors – a noble motto, 'I serve.' "

She often said that her belief in public service was inspired by her faith. In 1947 she called on God to help her to make good her vow. Down the decades in each of her Christmas Day broadcasts she would remind the country of the centrality of her faith and of her profound respect for people of other faiths and traditions. The central message was service for the common good.

At the outset of the Covid-19 pandemic, she pointed the British people to the future, saying "I hope in the years to come everyone will be able to take pride in how they responded to this challenge. And those who come after us will say the Britons of this generation were as strong as any. That the attributes of self-discipline, of quiet good-humored resolve and of fellow-feeling still characterize this country. The pride in who we are is not a part of our past, it defines our present and our future."

These characteristics and attributes that she hoped might identify the British people – good humor, resolve, self-discipline and fellow-feeling – are most certainly qualities that can be ascribed to a much-loved and remarkable Queen who promised to serve her country throughout all her days and unfailingly kept her word in doing so.

In 2007, during a Roscoe Lecture to which I had invited Prince Charles, now King Charles III, to deliver in Liverpool, he cited the words of the poet T.S. Eliot, referring to the celestial metaphor of the "cycles of heaven." The heavenly cycles have now entrusted him with his mother's rich legacy – and if we reflect on what he has had to say about the duties of citizenship and on his reiteration of her call to public service – we can see that the future of the UK's constitutional monarchy is in good hands.

Source: gisreportsonline

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Damon

Russian President Vladimir Putin thanked Chinese leader Xi Jinping on Thursday for his "balanced" approach to the Ukrainian crisis and blasted Washington's "'ugly"' policies at a meeting that followed a major setback for Moscow on the battlefield.

Speaking at the start of talks with Xi in Uzbekistan, Putin said he was ready to discuss unspecified '"concerns'" by China about Ukraine.

"We highly appreciate the well-balanced position of our Chinese friends in connection with the Ukrainian crisis," Putin said, facing Xi across a long table.

"We understand your questions and your concerns in this regard, and we certainly will offer a detailed explanation of our stand on this issue during today's meeting, even though we already talked about it earlier," he added.

Putin's rare mention of Chinese worries comes as Beijing has been anxious about the impact of volatile oil prices and economic uncertainty due to the war in Ukraine that has dragged on for nearly seven months.

The two met on the sidelines of the eight-nation Shanghai Cooperation Organization that includes India, Pakistan and four ex-Soviet nations in Central Asia. The security alliance was created as a counterweight to U.S. influence.

A Chinese government statement issued after the meeting didn't specifically mention Ukraine, but said Xi promised ''strong support'' to Russia's ''core interests.'' While the statement gave no details, Beijing uses ''core interests'' to describe issues such as national sovereignty and the ruling Communist Party's claim to Taiwan, over which it is willing to go to war.

Speaking after the meeting, Russian Foreign Minister Sergey Lavrov said the assessments of the international situation by Moscow and Beijing ''fully coincide. We don't have any differences.''

He added that both countries ''will continue coordinating our actions, including at the upcoming United Nations General Assembly.''

Lavrov described the talks as ''excellent,'' saying they were ''very businesslike and concrete, involving a discussion of tasks for various ministries and agencies.''

The Biden administration described the Putin-Xi talks as part of a rapprochement that has worried Washington.

'We've made clear our concerns about the depth of China's alignment and ties with Russia,'' White House press secretary Karine Jean-Pierre said, adding that Thursday's meeting ''is an example of that alignment,'' but declined to comment further.

Xi's government, which said it had a ''no-limits'' friendship with Moscow before the Feb. 24 invasion of Ukraine, has refused to criticize Russia's military actions. Beijing and India are buying more Russian oil and gas, which helps Moscow offset Western sanctions imposed over the invasion.

Observers say Russia will likely grow increasingly reliant on China as a market for its oil and gas as the West moves to establish a price cap on Russian energy resources and potentially cut their imports altogether.

In trying to strengthen an alliance with China, Moscow has strongly backed Beijing amid tensions with the U.S. that followed a recent visit to Taiwan by U.S. House Speaker Nancy Pelosi.

''We condemn the provocations of the U.S. and its satellites in the Taiwan Strait,'' Putin told Xi. Putin Thanks China's Xi for His 'Balanced' Stand on Ukraine_1

Putin Thanks China's Xi for His 'Balanced' Stand on Ukraine_1

Chinese President Xi Jinping, left, and Russian President Vladimir Putin pose for a photo on the sidelines of the Shanghai Cooperation Organization (SCO) summit in Samarkand, Uzbekistan, Thursday, Sept. 15. AP-Yonhap

Russian President Vladimir Putin, left, and Chinese President Xi Jinping, right, talk during their meeting on the sidelines of the Shanghai Cooperation Organisation (SCO) summit in Samarkand, Uzbekistan, Thursday. AP-Yonhap

Along with Russian's attack on Ukraine, the summit is taking place against the backdrop of hostilities between Armenia and Azerbaijan not far from Uzbekistan, as well as strains in China's relations with Washington, Europe, Japan and India due to disputes over technology, security and territory.

Speaking at the start of his one-on-one talks with Xi, Putin blasted efforts by the United States and its allies to dominate global affairs.

''Attempts to create a unipolar world have recently taken an absolutely ugly shape. They are absolutely unacceptable for the vast majority of countries on the globe,'' he said in opening remarks.

''The tandem of Moscow and Beijing plays a key role in ensuring global and regional stability,'' Putin said. ''We jointly stand for forming a just, democratic and multipolar world based on international law and the central role of the United Nations, not rules invented by some who try to enforce them on others without explaining what they are.''

Xi was more careful, saying that ''in the face of changes in the world, times and history, China is willing to work with Russia to reflect the responsibility of a major country, play a leading role and inject stability into a troubled and interconnected world.''

The meeting came after Russia was forced to pull back its forces from large swaths of northeastern Ukraine last week amid a swift Ukrainian counteroffensive. Ukraine regaining control of several Russian-occupied cities and villages represented Moscow's largest setback since its forces had to retreat from areas near the capital early in the war.

The SCO summit in the ancient city of Samarkand is part of Xi's first foreign trip since the start of the coronavirus pandemic 2 1/2 years ago, underscoring Beijing's desire to assert itself as a regional power.

Putin also met with Iranian President Ebrahim Raisi, whose country is on track to join the Shanghai Cooperation Organization. Raisi said Moscow and Tehran were finalizing a major treaty that would bring their relations to a ''strategic level.''

He and Putin both criticized the U.S. at the start of their meeting. Raisi accused the U.S. of breaching its obligations under Iran's nuclear deal with world powers. Putin gibed American officials, saying ''They are masters of their word ― they give it and then take it back whenever they want.''

The Russian leader also met with Central Asian leaders and planned a session with Indian Prime Minister Narendra Modi on Friday.

There was no indication whether Modi would meet Xi. Relations between India and China are strained due to clashes between the countries' soldiers from a border dispute involving a remote area of the Himalayas.

Putin also is scheduled for a one-on-one meeting with Turkish President Recep Tayyip Erdogan and President Ilham Aliyev of Azerbaijan. Turkey and Azerbaijan have the status of ''dialogue partners'' with the SCO.

Earlier this week, Azerbaijan and Armenia engaged in cross-border shelling that killed 176 troops on both sides, the most serious hostilities in nearly two years between the decades-long adversaries. The fighting has put Moscow, which has tried to maintain close ties with both countries, in a precarious position.

Putin's meeting with Erdogan will be closely watched for their statements on Ukraine and a July deal brokered by Turkey and the U.N. to clear the way for exports of grain and other agricultural products that were stuck at Ukraine's Black Sea ports after the invasion.

The Chinese leader is promoting a ''Global Security Initiative'' announced in April following the formation of the Quad by the U.S., Japan, Australia and India in response to Beijing's more assertive foreign policy. Xi has given few details, but U.S. officials complain it echoes Russian arguments in support of Moscow's actions in Ukraine.

The region is part of China's multibillion-dollar Belt and Road Initiative to expand trade by building ports, railways and other infrastructure across an arc of dozens of countries from the South Pacific through Asia to the Middle East, Europe and Africa.

On Thursday, Xi met with President Sadyr Zhaparov of Kyrgyzstan and said Beijing supports the ''early operation'' of a planned railway linking China, Kyrgyzstan and Uzbekistan, the Chinese foreign ministry said.

China's economic inroads into Central Asia have fueled unease in Russia, which sees the region as its sphere of influence.

Xi visited Kazakhstan on Wednesday en route to Uzbekistan. Pope Francis was in Kazakhstan, but they didn't meet. (AP)

Source: TheKoreaTimes

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Damon

Financial Services Giant Old Mutual Wealth is appointed to control the reserved notes that back ZARP, the crypto stablecoin pinned to the worth of the South African Rand.

The appointment of Old Mutual will allow ZARP to spout the prestige of one of the country's oldest and most trusted institutions. ZARP also said the move would enhance a "new dimension of trust" to the stablecoin project through numerous audits and support from the financial giant.

The founders of ZARP, Simon Dingle and Kenny Inngs, clarified in the Mybroadband statement that they designed the token to set the standard for stablecoin auditing in South Africa. While attesting to their audited cash reserves will improve the credibility of the cryptocurrency.

"We designed ZARP to be the most trusted cryptocurrency project in South Africa, with cash reserves fully backing the value of ZARP tokens circulating in the market," said Dingle, ZARP's managing director.

South African stablecoin gaining popularity

ZARP is a fully collateralized stablecoin that has attracted more users and trading volume while building trust by listing a backed transparent stablecoin. It also stimulates deposits within the local industry.

Speaking about the possible impact of Old Mutual Wealth's association with stablecoins, ZARP's Managing Director, Simon Dingle said it would add trust to the ZARP project, saying:

"We set out to partner with the absolute best of the best in managing our cash reserves, so naturally, Old Mutual Wealth is a perfect fit,"

ZARP stablecoin's trading volume is estimated to be $3.9M

According to ZARP, Old Mutual's management of the treasury will ensure the safety of new tokens to match the amount of ZARP acquired.

"Independent auditors verify our treasury to guarantee that we have the money we claim and act honestly in maintaining our treasury. This way, there is always at least 1 South African Rand for every 1 ZARP token, and we will never pay more or less than R1 for every ZARP burned," ZARP said in a statement on its site.

An attestation report published in May reveals that the ZARP stablecoin had tokens worth around $3.9 million since OVEX first listed it as a centralized exchange.

Source: beincrypto

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Owen Li

Our Bank of England call

We narrowly favour a 50bp hike on Thursday, taking the Bank Rate to 2.25%, although 75bp is clearly on the table and we would expect at least a couple of policymakers to vote for it. It's even possible we get a rare three-way vote – the first since 2008 – if dovish committee member Silvana Tenreyro votes for a 25bp hike as she did in August. If our call is correct, then we expect another 50bp move in November and at least another 25bp in December. That would take Bank Rate to the 3% area.

It's a tough meeting to call...

Next week’s Bank of England meeting is crucial. It will tell us not only how worried policymakers are about the slide in sterling and other UK markets, but also how the government’s decision to cap household/business energy prices will translate into monetary policy.

It has also, undeniably, become a close meeting to call. Hawks at the Bank of England will undoubtedly be concerned about the independent sterling weakness we've seen recently (down 4% in trade-weighted terms), even if in practice it’s unlikely to make a huge difference to the big-picture inflation outlook. Both the Fed and ECB will have also done (at least) 75bp hikes by Thursday, and markets are increasingly concluding the BoE will do the same.

But we’d caution against assuming UK policymakers will ramp up the pace of rate hikes simply because that’s what everyone else is doing – or indeed because that’s what markets are pricing. As recently as June, the BoE hiked by ‘only’ 25bp, despite the Fed having done 75bp the night before, and defying market expectations for more.

Indeed, there are good reasons to think the Bank will ‘stick to its guns’ and simply repeat the 50bp hike it executed in August.

Government energy price guarantee means inflation unlikely to go much higher

Bank of England to stick to 50bp rate hike despite the Fed and ECB doing more_1

One immediate consequence of the government’s decision to cap household electricity/gas bills this winter is that headline inflation should be dramatically lower. We now expect CPI to peak at 11% in October, only slightly above where it is now, compared to 16% in January had the government not intervened. It also means headline inflation should be back around the BoE’s 2% target at the end of next year, crazy as that sounds. All of that should help keep consumer inflation expectations in check, and in fact, we’ve already seen a noticeable pullback in long-term price expectations according to the latest BoE survey.

Admittedly there appears to be a wide range of views at the BoE about how much all of this actually matters. But we know from recent comments, notably from hawk Catherine Mann, that some policymakers have had a keen eye on consumer expectations over recent months.

By the BoE's own measure, consumer inflation expectations have dipped

The flip side, of course, is that extra government support potentially means higher medium-term inflation, even if headline rates are lower in the very near term. We think this is ultimately what most committee members will be more interested in.

The hit to GDP this winter is likely to be more moderate than the 2% cumulative decline the BoE forecast in August, while the sharp rise in unemployment it projected is less likely to materialise too. With worker shortages proving to be a long-running issue in the jobs market, the risk is that higher wage growth could become a persistent feature that requires more central bank tightening.

That doesn't necessarily have to manifest itself as a radically higher policy rate, and we still believe investors are overestimating the tightening to come. The swaps market is pricing a terminal rate in the region of 4.5% next year. Hiking by 75bp risks adding even more fuel to the fire, something we suspect the committee will be wary of doing, even if there are advantages in front-loading hikes. But even if the Bank doesn’t hike as far as markets expect, we do think the arrival of government stimulus means the BoE won’t be racing towards rate cuts next year, unlike some of its developed market counterparts.

Gilts, looking for some clarity

Gilts are looking for a much-needed reduction in uncertainty next week. Clearly, a 50bp hike would be a dovish surprise and help reverse some of the front-end’s weakness but even in the case of a 75bp move, the BoE clarifying its reaction function with regards to the energy package would be helpful. Fiscal and monetary policy competing with each other is an unnerving thought for bondholders. The Treasury’s fiscal event next week should also help answer any lingering questions about the size and financing of the energy support measures.

Gilts should widen to 200bp against Bund on a generous fiscal package

Even if the gilt ‘fear factor’ eases next week, it doesn’t answer the key question: who will buy all these gilts? A deficit-financed energy package will add to supply and to the BoE reducing the size of its portfolio. Private investors will have to make up the shortfall. This is not impossible but they will likely be some reluctance initially given the amount of new debt released into the market.

The BoE’s plan to start outright sales of gilts, albeit in small amounts initially, is an additional source of concern. On Thursday, the Bank is expected to vote in favour of starting this process, despite concerns about stress in the UK bond market.

Divergence in the size and financing of energy packages in the UK and the eurozone means the spread between 10Y gilts and bund should widen to 200bp.

Source：ING

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Owen Li

Why is gold falling?

Investors treat gold as a hedge against inflation. A rise in inflation or inflationary expectations increases investors’ interest in purchasing gold and drives up its price. In contrast, disinflation or a drop in inflationary expectations does the opposite.

Gold Isn’t Saving Investors from Inflation_1

Gold and inflation expectation. Source: Chicagofed

However, we can notice that since the 2000s, the gold price has been rising while the inflation expectations were steadily low. It was caused by the Fed monetary policy, according to which the Federal Reserve has been printing USDs to support the economy. As a result, the amount of USD in circulation increased parabolically, pushing gold prices to new highs.

Gold Isn’t Saving Investors from Inflation_2

Moreover, gold is sensitive to expected long-term real interest rates. Since metal is a long-duration durable asset, its price has a strong inverse relationship with the long-term real interest rate. A rise in expected real rates should drive down the price of gold.

Therefore, central banks’ rate hikes and the Fed’s quantitative tightening (QT) monetary policy make gold one of the most unpopular assets among big investors. Holding the metal doesn’t provide any dividends or payouts, while big hedge funds have to show a profit to investors. Therefore, smart money prefers short-term government bonds to gold, as yields skyrocketed to 15-year highs.

Gold Isn’t Saving Investors from Inflation_3

What to expect?

While the consensus is a 75-basis-point hike on September 21, some Fed members call for a 100-basis-point increase. The gold market reflects such a prospect. As a result, an actual rate hike by 75 bps may be a positive surprise for the yellow metal.

Gold Isn’t Saving Investors from Inflation_4

After the breakout, primary support levels for XAUUSD are 1530.00, the horizontal level from May 2012, and 1435.00, 161.80 Fibonacci level. The range between 1680 and 1705 acts as the massive resistance for the price since the breakout.

In the short term, the price might increase inside the resistance range to confirm the breakout. However, I expect a massive decline towards the support levels in the middle term.