JoeAm issues his Year Two report card on President Duterte’s Administraton

[Adapted; original graphic from Daily Mail]

By JoeAm

Rappler put out a poll on Twitter asking readers to issue a Year Two Report Card for President Duterte on the following subjects:

  • Eradicating poverty and hunger
  • Fixing Metro Manila transport and traffic
  • Getting rid of corruption
  • Improving health care services and facilities
  • Strengthening foreign relations
  • Promoting gender rights and equality
  • Protecting Philippine sovereignty
  • Providing jobs
  • Upholding press freedom
  • Sustaining the environment
  • Improving the education system

We know such polls have no scientific relevance, and are actually more titillating than informative. It’s like Rappler’s “Mood Meter” that allows readers to express their emotions about articles. I’d personally prefer they ask readers to express their view as to how informative an article was. There is too much emoting these days and not enough knowledge being passed around.

The poll is definitely slanted against President Duterte, I think, including hot buttons that Rappler seems to have a vested interest in with its ‘liberal’ viewpoints, promoting gender rights and upholding press freedoms most notably. A pro-Duterte poll might have included rating topics like:

  • Inspiring citizens
  • Establishing peace in Mindanao
  • Keeping the peace with China
  • Gaining unity in the legislature and courts (ahahaha)

Excuse the latent cynicism that leaked through on that last one.

Off the top of my head, I would have given a “C” for transportation and a “D” for health, and F for everything else. If I actually searched for KNOWLEDGE, my grades would probably edge up in areas where some agencies are still doing earnest work.

You can opine on the Rappler report card if you wish. I shall merely take the opportunity, two years in, to consider my own benchmarks for success established when the Duterte presidency began, and reported in the article “Benchmarking the Duterte Presidency

I set performance benchmarks for performance in nine areas. The possible “grades” were outstanding, excellent, as expected, weak, or failure. Here are the nine areas:

  • Stable, growing economy
  • Crime reduction
  • Poverty reduction
  • Peace in Mindanao
  • Harmony with China
  • Infrastructure development
  • Human rights
  • Corruption
  • Federalism/Constitution rewrite

This would be my evaluation at the Year 2 mark:

Stable, growing economy

The benchmark is GDP growth. The grade is “As Expected” trending above 6%. But there are a lot of caveats about prices, weak peso, flight of investor money, debt, and trade imbalance. So the grade comes with a warning flag, or a note to the parents (the people).

Crime reduction

Crime statistics lag by two years, so we don’t have current data. Some in the Administration say crime is going down, but the President also says it remains a huge problem. It is bizarre because the Administration undertakes a lot of crime directly itself, including killings outside of due process, arrests for trivial offenses, and corruption among officials. Jail conditions are horrendous. It is hard to comprehend how the State will reduce crime when it is busy setting the example by committing crimes, undermining the rule of law and respect for police, and treating citizens brutally. I’d give this a “Failure”. The President seems to agree. When he campaigned, he promised to rid the nation of drugs and crime in six months. That was a clear benchmark. Now he says it will not happen during his term.

Poverty reduction

The Government has not updated the poverty statistics past the 2015 numbers used in the benchmarks. Nor are the effects of recent tax increases in the calculation. My guess is that, with strong remittances and growing economy, improvements have been made. But they are likely diminished by the recent uptick in prices. I’d give this a tentative “As Expected”.

Peace in Mindanao

The measure here is peace agreements with the NPA and MILF, and suppression or eradication of BIFF/ISIS. Given that we are only a third of the way through the term, I’d judge progress to be “As Expected” tending toward Excellent.  Fighting in Marawi succeeded in suppressing ISIS and the AFP remains active in hunting terrorists. The Bangsamoro Basic Law is in draft form with reasonable promise of getting signed. The discussions with the NPA made some progress before breaking down on continued NPA lawlessness incidents during negotiations. It is hard to tell if the rough words between Sison and Duterte are serious, or only their style of negotiation.

One caveat is that relations between the government and locals in Marawi have turned bitter, and it appears that this may be fueling a rise in recruiting for Muslim extremists. Another is that if talks with the NPA break off, recruiting and violence will likely rise. Another note for parents.

Harmony with China

This is an area that would be graded “As expected” given that the benchmark only considers China’s positioning in the West Philippine Sea. That standoff continues, as expected. Nothing has been resolved. But the benchmark did not anticipate the level of engagement that would occur between the Duterte Administration and China, placing alliance with the US at risk, China being given a privileged role in infrastructure development, and the fear of debt build-up, corruption, employment of Chinese workers in jobs Filipinos could do, and repeated reports of shoddy work by Chinese contractors. Of course, the Administration would give itself a grade of A+ on this subject, looking at fast infrastructure development and easy money. But ‘subservience’ is different than ‘harmony’.

Infrastructure development

The benchmark is capital outlays as a percentage of GDP, with 6% being “as expected”. I could not find a consistent timeline on this metric, which was originally obtained from an outside source. However, it was reported by DBM that 2017 infrastructure development expenditures were P569 billion, up from P493 billion in 2016. The Administration also reports active spending early in 2018, well above prior-year levels. NEDA also reports high activity in projects approved.

I will score this one “Excellent” (equivalent to a 7% of GDP measurement) because I believe sincere efforts are being undertaken to make this the centerpiece of the Duterte administration’s work to build a better Philippines. The funding of the effort and cost and level of borrowings from China are not considerations in this evaluation.

Human Rights

I give this a gross “Failure” mark, given the rampant PNP killings outside of due process, arresting of minors without charge, jailing of Senator De Lima, State acts to disparage decent people, criticism of human rights people inside and outside the Philippines, the President’s offensive remarks about women, a case against President Duterte in the International Criminal Court, and other incidents. Failure in the benchmark is degradation in 3 of 23 measures of human rights performance. The performance is not “degraded” in many areas. It is flatly rejected or ignored or abused. I could not identify any area of improvement.


The benchmark is the nation’s standing on Transparency International’s corruption index. The Philippines dropped to 111 among all nations in 2017, down from 101 in 2016 and 95 in 2015. The standard of “Failure” is a five point degradation yearly. Transparency International cites the deterioration in the Philippines as among the worst in Asia. It is easy to recite anecdotal evidence that illustrates that the Duterte anti-corruption effort is more show than performance. I think the results are clear enough that elaborating further would just be beating a dead horse.

Federalism/Constitution rewrite

The benchmark to keeping or re-writing the Constitution orients around the stability and integrity of the constitutional framework for the Philippines. My evaluation is “Weak” which reads as follows:

  • Weak: the constitutional democratic framework is challenged; considerable political and economic disruption

It is trending toward failure, which would be severe disruption and overthrow of the Constitution. The Supreme Court has effectively been overthrown, leaving the Senate and independent agencies standing between democracy and dictatorship. The Ombudsman is likely to fall soon.


The benchmarking process is definitely an aid to objectivity, taking a great deal of political bias out of the assessment. It is also simplistic in that it looks at only one measure for each area, making it weak for not being able to show all the attributes of strength and weakness.

But I think this assessment is fair, doing a tabulation of the various ratings:

  • Outstanding: 0
  • Excellent: 1
  • As Expected: 4
  • Weak: 1
  • Failure: 3

This is a government that is not doing well.


171 Responses to “JoeAm issues his Year Two report card on President Duterte’s Administraton”
  1. karlgarcia says:

    Sustaining the environment-
    Lambasting and Mocking the DENR officials from Metro Manila on their anniversary, by asking: “Those from Manila raise your hand, are there forests here?”
    I grade him a G or Beyond F

    • karlgarcia says:

      Aguirre,Teo,Laviña….You were caught so You are Fired! I will not allow corruption in my country!
      Bong,you are always waking me up and carry my stuff, that is hardwork, what happened to the Frigate deal? You take care of that while I go back to bed.

      • What DID happen to the frigate deal???

        • The complexities are beyond my comprehension. Will the arms control center fit the boat?

          • karlgarcia says:

            After my answer, here are more things I just dug up to find out if I justmade a fool of my self.


            The company, Hanwha Systems is a South Korean company specialized in making defense technology which is meant to defend the home nation as well as to be part of the global defense community doings its business to its notable clients in the industry which definitely includes the Philippines.

            If we are to check the history of the company, Hanwha System is part of the larger company which is Hanwha Techwin or what was once known as Samsung Techwin where Samsung sold this security division to the Hanwha group in 2014. So as to the development of the Naval Shield itself, it is worthy to take note that the company at the time of the bidding is known as “Samsung Thales” which is a partnership between Samsung Techwin and Thales Group.

            The changes of company structure throughout the bid from Samsung Thales to Hanwha Thales and eventually to simply Hanwha Systems is something that makes things partly-bit problematic especially that the frigate bid takes place as these changes took place. Hence, the in-depth details about the Samsung/Hanwha-Thales relationship are provided as follows from information gathered through in-depth research:

            Year 2001.
            – The Defense business of Samsung Electronics transformed into Samsung Thales as the result of Thales Group’s Investment to the said business division which makes it a joint venture in terms of specialized defense technology and the developments that took place on its timeline. This is the structure of the defense business division until 2014. Source

            Let us take note that the first stage of the bidding process for the frigates started in the year 2013 which the first bidding specifications are released at that time. Hence, it can be said at that time that it was Samsung Thales will be the one to provide the Combat Management Systems should a Korean frigate won at that time where it actually taking place three years later which on an assessment before reports have broken out, were to compete with Thales TACTICOS system. Add to these, the Naval Shield are one of the products made in this joint venture which in itself is derived from an earlier version of Thales TACTICOS as the details about the said CMS to be discussed throughout this article. Let us continue about the timeline:

            Year 2014-2015.
            – Samsung Group sells its chemical and defense firms which include Samsung Techwin and Samsung Thales to Hanwha. There are reports about it which it eventually took place on June 2015. These actions were made in part of large restructuring of Samsung’s business structure as its chairman went hospitalized. Source

            At that time, the partnership of Samsung and Thales are gone together in the sale of the divisions and eventually Hanwha became Thales’ new partner with regards to the defense-related development in which it may include the ones that have done in the old partnership. What was once Samsung Thales became Hanwha Thales which, it takes couple more time before Thales decided to sell all of its shares of the partnership to Hanwha.

            Year 2016.
            – Hanwha is to buy Thales’ stake on the Joint Venture worth $257 million. This is after the Thales exercising their “put option” with regards to their investments in the said venture. From this point, until October of the said year, Hanwha and Thales ends their partnership eventually. Obtained from outlets Reuters and Korea Herald. Links are posted for both pages, respectively. [link] [link]

            So as to take note about the date, October 2016 is also the date where Hyundai Heavy Industries signed the contract for the Frigate Acquisition Project which the shipbuilder passed after their post-qualification assessments. With regards to the reports of that time, the Combat Management System that was offered is the Thales TACTICOS with Hanwha Naval Shield being a second possibility at that time until it was revealed at the present day this article is published that the latter will be used for the said project.

            The timeline alone especially on the span the frigate acquisition project is at a bidding (2013-2016), the partnership structure at those times are so drastic when it comes to the changes made where in it significantly affects projects like this especially on the points of the technicality of the joint venture itself (the name of the partnership may be considered as a factor) in which it is one of the reasons on the varying opinions across the defense community aside from the Combat Management System which we cannot tackle if further from here.

            Hence, since that Hanwha System’s chance to supply their Naval Shield ICMS to the Philippine Frigate gets increasing as the time passes by, it is worthy to discuss about the system itself “the way information is presented by reputable sources across the web.”

            . ….,
            The answer to the question of Joe is not short, the rest of the article discusses it.

            • I have a headache. That’s the problem with people. They get involved and eventually their collective ignorance or search for advantage gets tied to the time warp of process and the whole shebang disintegrates and all the king’s men and all the king’s women can’t put humpty back together again.

          • karlgarcia says:

            Lesson from Korea that applies to the previous blog of having our own military industrial simplex.

            Hence, it is a good thing to have that South Koreans have produced their own Combat Management System which it really helps their navy ships to function with all of the weapons attached to a system they considered “their own”. Add to that, the South Korean defense industries are in the attempts to gain ground on international stage where in the case of the Philippines, a Korean-made ships are on its way aside from the number of Korean-made assets that are already with the Armed Forces such as the KAI FA-50 Fighting Eagles. With these, we can only hope that Hanwha Systems and their Naval Shield ICMS will be further prove its worth aside from the ones incorporated in the Korean Navy where expectations and standards can be met or to be exceeded upon.

          • karlgarcia says:

            Will that make us safe from Nokor?

        • chemrock says:

          Karl, I believe that is the norm in doing business in Philippines. I have been up close to several private enterprise engagements. It seems between the 2 contracting parties there always stand a motley crowd of bloodsuckers, and there is the ever present attorney who is not doing lawyering work.

      • karlgarcia says:

        Based on the the assessment legend:

        3 for environment
        3 for corruption.

  2. Gemino H. Abad says:

    Thanks, Joe! Personally, I still find it difficult to trust the present government.

    • Trust is a huge issue, difficult to benchmark. If we went by poll ratings, we’d score govt favorably. But who really trusts them?

      I share your mistrust. We can witness the duplicity in how the federalism draft is being held close rather than opened up to dialogue.

  3. josephivo says:

    I have only a very small window on infrastructure. The road to our subdivision is in a very dilapidated state. It started 10 years ago when suddenly one morning dozens of concrete slabs where crumbled as hit by a wrecking ball. A heavily overloaded truck passed that night? Since then these spots are repaired (on a irregular base) First under Arroyo the repairs lasted only a few weeks. Then under Aquino the repairs lasted one/two years, some are still in place. Now again repairs last again for only a few weeks and the repair intervals are longer. So for infrastructure an F.

  4. andrewlim8 says:

    We foresaw this some four months ago:

    (source: GMA news online 5 July 2018)

    ” One reason for the poor performance of the economy, De Dios claimed, is the fear of Cabinet members to voice their opinions on Duterte knowing the possibility of a backlash.

    This fear has caused the members of Duterte’s inner circle to justify his policies even if they knew these have not been studied carefully, the professor also claimed.

    “I think that part of the problem is everybody’s afraid of him. Even his Cabinet is afraid of him and so there’s no room for the Cabinet to say, ‘Let’s make a rational study of this or that policy’. So they defer. Once he says it, ijujustify na nung Cabinet. Baligtad. They’ll find a reason why it’s the correct thing to do even though it’s not been studied thoroughly,” De Dios further claimed. “

  5. karlgarcia says:

    Infra- this I can’t blame Duterte.

    Water utilities keeps on destroying newly repaired,paved or even new roads because we can’t wash our plates with acid to fully dissolve the cooking oil or else it will also dissolve our hands.

    • Rains and storms in our area (Eastern Visayas) are hugely problematic, washing down hillsides and washing out roads and bridges. A few months ago a killer rain came through and devastated the place. But we are resilient. We shrug, bury the dead, and try to get to market.

  6. karlgarcia says:

    If the senate wants to stop look collaborate and listen by suspending Train, this may mean that they are no longer afraid to lose their jobs with charter change. 2 reps from each region, all they need to do is move to another province and stay there until next elections.

    I mean the Train law is felt by evetybody, now there is a grand tax amnesty plan to collect all estate taxes so many land can be finally sold to collect real estate taxes after collecting sales tax.

    I think many will bite and that would be good.

  7. karlgarcia says:


    More elected politicians will negate the anti dynasty law if passed.

    I thought it would consolidate more, but with the addition of Negros region to the states, what’s next, Quezon region? Cebu Region? More gerrymandering to follow.

    Hope I am wrong.

  8. chemrock says:

    I wrote on Federalism some time back and I noted the Philippines strange case of cutting up a cake and then putting it together again.

    Kit Tatad has a good article out today and he stressed my point above. Of course he writes it much more eloquently than I ever could. His point — that pro-ferderalism groupies can’t even get the word correct. Federalism is about parts getting together so we can’t have a unitary state to federate. We are getting a unitary state to freak up, and the word for that is “balkanisation”. I think Tatad is the first to use that word, and he is absolutely correct, except that balkanisation is often used in the case where the unitary state is broken up into sub-entities that are usually hostile towards one another. Good example is the balkanisation of Czehkoslovakia and Yugoslavia.

    • chemrock says:

      Oops — break up, not freak up.

    • Balkanization is possible.

      Ilonggos already hate Duterte for calling Iloilo most shabulized and chasing Mabilog.

      Batangas is fuming over Halili’s death and defamation. Duterte calls Cebu backward and drug-infested. The only reason he will not dare kill Osmena is his enormous popularity – he would have more Visayans hating him overnight than Croats hating Milosevic in 1992.

  9. karlgarcia says:

    What on earth am I doing giving grades of 3 and 2.5
    Just because I saw a 3 aftet Fon the final tally, which I mistook for a Legend?

    I thought 3 means F

    One big forhead slap.

  10. Rappler has published highlights of the new constitution draft, plus includes a copy of the text at the end. I am unlikely to do a blog on it, so we can open up the discussion here, as well as the two year review.

    In another article, Koko Pimentel has said “no” to term extension for President Duterte.

    • karlgarcia says:

      That is nice to know re: no term extensions, but he only counted three as unfulfilled promises.

      Let me speed read the draft now.

    • karlgarcia says:

      I give congress three years to finish the debate.
      Then the plebiscite given to the citizens of Sabah has to happen first.

      If not they might just delete that portion once they figure out that it is not that easy.

      • karlgarcia says:

        The Malaysians have been helping us with the peace talks with the Muslims.
        What will Malaysia get in return for allowing us to reclaim Sabah?

    • Francis says:


      I skimmed through it,

      Had some good ideas. I saw a tweet from someone at Twitter—that the constitution was overly long and elaborated too much on things that should be left to ordinary legislation.

      My charitable take on that was that the framers of the draft constitution were trying to idiot-proof this constitution—and given the state of our politicians and our nation, I can’t exactly blame them for that.

      I like a lot of new things in the new constitution.

      Except, you know—the whole federalism thing itself.

    • Notes on Rappler summary:

      Human rights protections have been removed; CHR remains; rights are based on international treaties entered into.

      Social and economic rights added: adequate food; universal and comprehensive healthcare; complete, quality education; adequate and decent housing; and livelihood and employment opportunity.

      18 regions, each with its own court system

      Federal keeps many powers, including education. Regions are mostly economic units and local services.

      Regions have a lot of tax rights but income, excise, VAT customs remain national; 50% of revenue to be allocated to regions.
      President empowerd to take charge if a region is having problems (ala Boracay?).

      No term extension for President/VP, but President chairs transition commission.

      God is still in the preamble.

      The deal killers for me are that (1) transition processes are not spelled out, (2) removal of human rights directly (treaties can be cancelled), (3) President’s autocratic powers, and (4) the complex divisions/inefficiency/expense entailed. 18 different court systems???!!!

  11. karlgarcia says:

    Senators are elected by region, but 40% of the HOR will be elected nationally so the former senators not lucky enough to find a new province will have somewhere to go I presume?

  12. karlgarcia says:

    3 Supreme courts for Luzon, Visayas and Mindanao? Is there a Supreme Court, More Supreme Court and Most Supreme Court.

    • karlgarcia says:

      Good thing that is not how they envisioned the 4 High Courts.

    • The more courts, the more positions to offer to compliant lawyers.

      • karlgarcia says:

        At least less Notary publics!
        More judges, more justices!
        All lawyers will have a job.

        Politicians will never run out of jobs unless they are in some matrix.

        • Why I declare, I have a librarian who is becoming a cynical librarian. Hahaha Join the crowd. I have to restrain myself on Twitter or every note would be sarcasm.

          • karlgarcia says:

            I want to stop with the cynicism but I have a feeling the pro parliamentary form of government like Arroyo will find a reason to be relevant somehow.

            What made the pro parliamentary group lay low?

            Untill then I am still amazed how they managed to over size an already bloated bureacracy.

            What would be the initial budget 18 trillion?
            How will they do it this time, hopefully by RUNAWAYTRAIN so TRAIN would go away.

            • Yes, the bureaucracy is huge. I guess it is a form of build build build . . . assured of increasing taxes. Such a waste of effort, it seems to me, when the only problem with the existing system is the character of the people running it.

        • edgar lores says:

          There will be more overlords to lord it over the people.

  13. edgar lores says:

    1. At first reading, I thought the scoring was high. But on second reading, I think it is on the mark with a couple of caveats.

    2. I mainly agree with the scoring on 7 benchmarks: Economy, Crime reduction, Poverty reduction, Infrastructure, Human rights, Corruption, and Federalism.

    3. I tend to disagree on 2 benchmarks: Peace in Mindanao and Harmony with China.

    4. On Peace in Mindanao, instead of “As Expected,” I would hand out a “Failure.”

    4.1. There is no formal agreement with the NPA, BIFF, or MILF.
    4.2. There is continued active rebellion by the NPA.
    4.3. ISIS may have been suppressed but at a high cost in Marawi.
    4.4. Marawi is an open sore.
    4.5. The Abu Sayyaf has not been completely eliminated.

    5. On Harmony with China, with the advantage of hindsight, I think the proposed benchmarks were misconceived. At the time of writing, the Arbitral tribunal verdict had not been handed down and no one anticipated that Duterte would make a 100% pivot to China. To my mind, the issue is how far China has gone to develop the artificial islands and how far the Philippines has acceded to China’s aggression.

    5.1. Since China has militarized the artificial islands and has not given up control of Scarborough Shoal, I would have to hand out another “Failure” card.

    5.2. However, if we generally speak of harmony with China – never mind that it is one of subservience – then the score would have to be “Outstanding.”

    6. My tabulation would then be:

    o Outstanding: 0
    o Excellent: 1
    o As Expected: 2 (instead of 4)
    o Weak: 1
    o Failure: 5 (instead of 3)

    7. On the Rappler poll, I give Duterte all F’s – with great enthusiasm and relish.

    • You make a strong case on Peace in Mindanao, and I share your belief that the benchmark on China missed the mark entirely. Thanks for these scorings. I would not try to dispute them at all.

  14. NHerrera says:

    I posted the item below in the previous blog article but am posting it again here for its relevance concerning the blog article’s subtopic, the PH economy.

    From January 26 give or take a few days, here are the relative movements of DJIA, SSE, PSE [US, China, PH] stock indices. The last few days, the PSEi did a “dead-cat bounce,” but the general movement shows that PSEi reflects more or less China’s Shanghai Stock index — China being the PH’s current patron.

    • NHerrera says:


      Caveat [from a non-economist]: of course, the Philippine Stock Exchange (PSE) index is not the only indicator of the PH economic health as the Administration is likely to argue and they are right. That notwithstanding, business looks to the direction and scale of movements of the Stock Exchange as a weather vane.

      If the observation that the SSE and PSE indices are somewhat correlated as the above charts indicate (with the PSE taking as one of its main cue the SSE), we may plausibly state that the PSE will not turn bullish soon if the SSE continues to be bearish — what with the trade war between China and the US remaining unsettled, in fact they have just started this pissing game. The situation becomes worse if the US itself is also significantly affected; and from China and the US, the snowballing effect on other economic biggies will follow.

    • I find the tracking to be eerie. I wonder if China’s trend is suppressing Chinese investment in the Philippines, producing the insecurities investors clearly feel. I read that one of the big Philippine pension funds has decided it will not invest in Philippine stocks right now because the trend is so decidedly down. They must be reading the dead cat the same way you are.

    • They will be first hit. That will make Trump angry so he will go to the next phase. More tariffs. I wonder how many ZTEs there are on the cusp of going bankrupt. Chinese companies will start feeling a lot of pain, too.

  15. karlgarcia says:

    Chna has debt problems and a Centrak Bank official is suggesting a Detroit style bankruptcy and bail out local governments and give guarantees to investors.

  16. edgar lores says:


    1. I am still greatly puzzled by what Duterte sought to achieve with the peace talks with the CCP/NPA.

    2. I suppose he wanted to replicate the modus vivendi he achieved with the Reds in Davao. Essentially, his transactional strategy was to co-opt the communists in a curious 3-pronged power-sharing arrangement.

    2.1. The Reds would be isolated and sidelined to a perimeter area.
    2.2. He would permit their continued survival and viability by supporting their collection of revolutionary taxes.
    2.3. Duterte would use them as muscle to intimidate opponents.

    3. This is almost the same strategy he applies to the Muslim rebels.

    3.1. Prior to the Marawi conflict, he allowed the MILF, BIFF and the Abu Sayyaf to operate in their respective strongholds.
    3.2. He has permitted their armies to maintain their illicit livelihoods through extortion and, for the Abu Sayyaf, ransom payments for hostages.
    3.3. He maintains a close relationship with Nur Misuari.

    4. But the Red and Muslim rebel strategies fail for the same reason: these rebels do not want to share power; they want absolute power. The Muslim objective is limited to owning a Bangsamoro homeland. But the communist objective is to rule the entire country. Any forged agreement is temporary and a means for each to attain their ultimate objective.

    4.1. I do not understand why Duterte does not understand this. In dealing with the communist, he has strengthened them by making them more relevant. The demonstrations against him are a mix of leftists and Catholics – strange bedfellows.

    4.2. The Communist are playing the long game. But I wonder if they understand the game has already been lost?

    4.3. It is perhaps a lucky thing that Filipinos do not make good ideologues. We tend to follow a personality rather than a principle.

    4.4. It is possible Duterte’s appointment of leftists to the cabinet and other governmental positions may have been to woo and win China’s support.

    4.5. But was it necessary? Is China still fomenting communist revolution in other countries or does she find it easier to manipulate less committed ideologues? Who is the more pliable puppet – Joma Sison or Duterte?

    • I think Duterte merely thought he could nationalize his local game.

      Locally he was doing different rebel groups a favor, undercutting the national government which he indirectly represented there. He still had implicit national backing though.

      Nationally he made himself look ridiculous, had less to offer as he was undercutting himself. Being too near both Reds and Moro groups were serious errors that led to the present civic resistance against him (strongly Red-lead) and I think to Marawi.

      Capturing Senate and Congress, breaking the Judiciary, intimidating the Catholic Church were all much easier moves for him. Possibly he was coached by Arroyo and/or Marcos.

      He needs the Army, they know it, he knows it. The outcome of that is opaque. Very.

  17. karlgarcia says:

    I might have known this beforehand, but have already forgotten, GE and Motorola are now owned by the Chinese?

    • karlgarcia says:

      By aquiring Smithfield foods and thir forced best practices and technology transfer, they can now provode the world with the best ham for christmas, and everything good about pork..

      By buying the biggest moviehouse chain and a hollywood production watchamacolit.

      All American movies would be Chinese dubbed with English subtitles.

      Who cares about ZTE we (says Xi)got Motorola Mobility now soon the whole shebang.

      With GE appliance we control the American Homes bwahahaha(Xi).

      Trade war my foot.(Xi)
      Btw soon we control the hotel industry too.( Xi )

      Trump-More tarrifs.

      • karlgarcia says:

        Xi: Apple and IBM, Lenovo will swallow you whole. (diabolical laughter)
        AT &T: nice merger and aquisition, your next (Louder laughter)

        Anti-Trust bodies served its pirpose, it removed all the trust by over regulating

        • Yes, for sure, in the current context, which is global and not national, it has handicapped American companies, versus China.

          • josephivo says:

            Free markets and leveled playing fields act on three variables: value, price and cost.

            For manufactured goods Amerika is lagging on “value”, creating what the customer wants, think at cars, washing machines and other bulky stuff, instruments, watches and other precision stuff, steel and chemicals and other bulk products. Value created of their digital service products are still leading (but how long?)

            On the cost side many of their industries are too old to compete with newer ones, more innovations, automation elsewhere in the world.

            The only thing left is price, cutting wages reached the bottom, hence the import taxes to artificially rise prices and forget free markets and small or absent governments.

    • I own a few shares of GE. Big loss leader. It is interesting that US regulators chased GE into Chinese hands because they thought purchase of the appliance division by Electrolux was anti-competitive. I think maybe anti-trust regulators need to update their thinking to fit Trump’s ‘America First’.

  18. Sup says:

    I give them a AAAAA++++++++ for cyber warriors….

    Palace spent P2.5B for ‘intel’ in 2017; COA notes 350% hike

    The P2.5-billion CIE is part of the P14.9-billion Malacañang spent for “maintenance and other operating expenses” (MOOE), the bulk of which (55 percent), amounting to P8.2 billion, was labeled as having been spent for “other MOOE.”

    These items for “other MOOE” include “donations” amounting to P4.8 billion; “rent/lease expenses” for P1.7 billion; and “representation expenses” totaling P1.6 billion.

    Aside from the CIE, about P3.2 billion was spent for “professional services,” mainly for “consultancy services” amounting to about P3.1 billion and P170.6 million for “other professional services.”

    The P2.5-billion CIE was given to various officials as cash advances, comprising 85 percent of the total funding.

    Read more:


  19. karlgarcia says:

    Was it Pimentel Sr. ir Jr. who said that thre would no term extension for Duterte?
    I will wait for the declaration of Sotto, just to makeit more unbelievable.
    Here isMareng Winnie’s take on the Draft constitution.
    Draft constitution: Be very afraid

    I have a copy of the draft new constitution (as of June 27, 2018) framed by President Duterte’s consultative committee, which he tasked to review the 1987 Constitution. It was signed on Tuesday, July 3, so it is fair to assume that not much could change in the six-day period between the draft and the signed document.

    So what are the major differences between the 1987 Constitution and the proposed constitution?

    A very important difference is that, right from the get-go, the proposed constitution adopts a federal form of government; it is the constitution of the Federal Republic of the Philippines. Not surprising, really, because all the members of the committee were pro-federalism also from the get-go.

    I want to remind you, Reader, that the March 2018 Pulse Asia Survey showed that the opposition to Charter change went up from 44 percent in July 2016 to 64 percent in March 2018, and the opposition to federalism went the same way, except by a larger margin—from 33 percent to 66 percent.

    But, wait. That is not all. The transitory provisions of the proposed constitution have given President Duterte vast powers between 2019 (I assume that the plebiscite will be held in 2019, a reasonable assumption) and 2022. And it also allows him—at least that’s what committee member Julio Teehankee has publicly admitted—to run for President in 2022. Since the new constitution provides for a four-year term plus one reelection, that means he can be our President (unless death intervenes) for a total of 14 years.

    He will, of course, be 85 years old by then. But, hey, Mahathir Mohamad of Malaysia is 94 years old. I hasten to add, however, that Mahathir neither drinks nor womanizes. That may make a difference.

    What vast powers do the transitory provisions give President Duterte? Well, first, he will be the chair of the Federal Transition Committee (FTC), with 10 other members that he will appoint from a list supplied by a five-person search committee, of which four are also appointed by him. Lutong Macao.

    And what does the FTC do? Wow. It will formulate and adopt a transition plan for the orderly shift to the new system of government, and it will promulgate the necessary rules, regulations, orders, decrees, proclamations and other issuances, do all acts to implement the same, and resolve all issues and disputes that may result therefrom. PLUS, it will organize, reorganize and fully establish the Federal Government and the governments of the Federated Regions, in accordance with this constitution; and exercise all powers necessary and proper to ensure a smooth, speedy and successful transition.

    This transition plan that the FTC is responsible for will include the respective transition plans for the different branches of the Federal Government, the Independent Constitutional Bodies, the Federated Regions and other component units; plus the fiscal management and administration plan, which includes, but is not limited to, resource generation appropriation, allocation and expenditures.

    Then, almost as an afterthought, it would also include the establishment of mechanisms for people’s participation in the transition. Gee, thanks.

    This power goes on until June 30, 2022, when the first national, regional and local elections will have taken place, and our first elected leaders under the new constitution take over.

    Bottom line: As soon as the new constitution is ratified, President Duterte, as chair of the FTC, has unlimited powers—to hire, fire, organize, reorganize, determine what will be the states that constitute the federal system, and how these states will themselves transition. For at least three years. Of course, by election time, he will have set the stage for his own election as president for the next eight years.

    Remember the transitory provisions that gave Marcos dictatorial powers? This is the very same thing. There is a term for it: constitutional authoritarianism. This is what Mr. Duterte must have had in mind when he talked of a revolutionary government.

    Well, he’s got what he wanted. If the people give it to him, that is.

  20. karlgarcia says:

    @Chemrock, the Chinese Central government is reading your comments and this is their preemptive strike.

  21. karlgarcia says:

    Welcomes some honorable mentions, then reads a few lines.
    Usual Rambling random thoughts.

    I am appointing the Transitionbody for my federal government for my people and my country!
    So my legislators must approve the draft hook, line and kitchen sink.

    Acknowledges JPE, I want to reach your age kaya kailangan happy tayo lahat.

  22. karlgarcia says:

    Raissa’s take on the impending or continuing dictatorship

    OPINION: House draft charter intends to turn Duterte into a dictator

    The House Committee on Constitutional Amendments started discussing today the “Salient Features” of the draft constitution proposed by President Rodrigo Duterte’s government. The draft constitution itself has not been made public.

    It isn’t clear who actually wrote and submitted the “Salient Features”, but the document makes five things immediately clear:

    (1) Once the new Constitution is ratified, Duterte will assume at once the powers of both the President and the Prime Minister

    (2) Elections next year will be canceled, leaving Duterte’s super majority in control of the legislature.

    (3) Duterte will be able to do anything during the transition period.

    (4) There is no guarantee up to when such a transition period will last.

    (5) Although the whole exercise of changing the constitution is supposed to pave the way for federalism, the draft constitution is very convoluted about implementing federalism.

    Charter change is a very complex, very abstract exercise. Those who try to follow the process can easily get lost and confused.

    As it turns out, I happen to be in a position to help people understand what’s happening. This isn’t because I’m a legal genius, lawyer or constitutionalist. But I did write long investigative reports on two famous cases of charter change. One was on the 1972-1973 Constitutional Convention, which was published by Business Day during Ferdinand Marcos’ dictatorship. The other was on then President Gloria Macapagal-Arroyo’s Constitutional Commission published by the Philippine Center for Investigative Journalism (PCIJ). Little did I know what I learned writing those reports would prove useful now.

    So, what can I tell you about charter change? For me, the most important thing to look at first are the TRANSITORY PROVISIONS, for two main reasons.

    First, transitory provisions will determine what happens when we change from the current presidential-bicameral-unitary form of government to whatever they are proposing.

    Second, the section on transitory provisions will lay down who will wield the powers during the transition and to what extent that person can drastically change things around.

    Let’s look at the transitory provisions in the proposed constitution currently being discussed [underlining mine].

    “The incumbent President shall exercise all the powers and functions of the head of state and head of government under this Federal Constitution until the election of the next President and Prime Minister in May 2022. He shall appoint the New Cabinet from among the Members of Parliament. He shall have supervision and direction over the Interim Prime Minister and Cabinet.”

    The draft constitution separately designates whoever is the President as the “head of state” and whoever is the Prime Minister as the “head of government”.

    However, during the Transition Period, the “incumbent President” – that’s Duterte—will assume the powers of BOTH the President AND the Prime Minister.

    This, in effect, will make Duterte much more powerful than he is today.

    How so?

    I can think of many reasons and I’m sure you can think of others.

    For starters, the Federal Constitution would place the entire legislature under Duterte’s thumb for the simple reason that we will no longer have our current form of government where the legislature is a co-equal body that checks and balances the President.

    Under the proposed set-up, President Duterte controls Parliament. And this means he CAN DO ANYTHING.

    In fact, he can even instruct Parliament to further amend THE FEDERAL CONSTITUTION THAT HAS BEEN PUT IN PLACE.

    He can even, through Parliament, insert a constitutional amendment saying that while Parliament is not in session or when there is urgent need for it, President Duterte can enact laws on his own.

    And there you have it. Duterte will have what those familiar with Ferdinand Marcos’ Martial Law called Marcos’ “Amendment No. 6” power. It was referred to as Amendment No. 6 simply because it was the sixth amendment introduced by Marcos to the 1973 Constitution. Amendment No. 6 legalized Marcos’ law-making powers, which he began to exercise immediately after imposing Martial Law in 1972.

    What happened to federalism?

    There is something very curious and highly suspicious about the Duterte government’s push for a federal form of government.

    The government’s battle cry today is “Federalism”. But when you look closely at what they want to happen, it’s not federalism but something else.

    When you look at the “Salient Features” of the proposed charter change – a copy of which I have added below—the process of federating the provinces into separate states won’t happen immediately.

    In fact, the process of federating can only take place starting “at least” six and a half years from now—or way beyond Duterte’s tenure of office, which is supposed to end in 2022.

    Federating the Philippines may even take 20 years or forever because there is no time limit given for federating.

    This is because the draft charter proposes a very complicated process for each State to federate or exercise autonomous powers:

    First, Parliament itself is given 18 months to enact a State and Local Government Code to be followed by each State.

    Second, the Federal Government will “gradually devolve and decentralize functions” to the States. It doesn’t say how gradual.

    Third, for a State to become an autonomous federal State, its State Legislature has to enact an Organic Act.

    Fourth, the Organic Act has to be ratified by the people in that State.

    Fifth, each Organic Act also has to be ratified by Parliament.

    Only then can a State exercise its functions and powers as a Federal State.

    HOWEVER—and this I would like to emphasize.

    HOWEVER, immediately upon the ratification of the proposed constitutional changes by the Duterte government, the present Congress will be abolished.

    An Interim Parliament will be deemed in place, consisting of all the current members of the House and the Senate. It’s unclear from the provision whether the Interim Parliament is unicameral (one chamber) or bicameral (two-chamber).

    What is clear is that all the congressmen who are supposed to run for reelection next year will have their terms of office extended until 2022. The same goes for the 12 senators who are supposed to seek reelection or retire from office by next year.

    This means that Duterte keeps his super majority control of the legislature intact.

    Given all these, we should ask ourselves—what is the real purpose of this charter change? Is it to federate the Philippines or to consolidate powers in the hands of President Duterte?

    I would like to thank Jeff Crisostomo, who shared online the proposed charter changes below. You can download the copy below.

    Disclaimer: The views in this blog are those of the blogger and do not necessarily reflect the views of ABS-CBN Corp.

    • karlgarcia says:

      This was written by Raissa last January, but fasten your seatbelts, let us be very vigilant
      The people who rejected Federalism in the surveys must contnue to be informed.
      Time for the good side of tabloid journalism.

    • Thanks. Raissa has banged a big gong of warning. The President has spent billions securing the loyalty of people. Presume the constitution passes the legislature, we can focus on what he does to win the plebiscite.

  23. karlgarcia says:

    We are already the fourth largest producer of ships in terms of tonnage, so we do have a role in the global value chain.

  24. karlgarcia says:

    Paging @chempoo

    Is the author just being an alarmist?
    The article is short, but it was not clear to me how the trade war might turn into a full-blown recession for the US.

    • karlgarcia says:

      And thie founder of the largst hedgefund says “The first day of the war with China has begun”.

    • chemrock says:

      In an inter-connected world, a trade war favours no one. It’s a loose-loose situation. And when 2 elephants fight, the grass suffers. There will be repercussions all over the world.

      I don’t know all the details so I can’t comment on the specifics of the trade war. But I’ll throw in the financial background and it will make me more of an alarmist.

      The Fed has been on the path of hauling in liquidity and raising interest rates. They started retiring cash I think late 2016 at a rate of US$10 billion monthly and has increased to US$30 billion per month recently. They intend to increase the withdrawal up to US$50 billion soon. That is a serious number. It is the root cause of what’s shaking the market at the moment.

      Why is this serious? Well there is currently about US$7 trillion outstanding debts in the world, mostly in emerging markets. $ supply decrease, $ rates go up, interest rates go up, debtor country suffers. The US$ is drying up. First casaulty will the equities markets. Stock exchanges down in Asia, China, Sorkor, Singapore. Trending is PSEI. As NH pointed out, there was dead cat bounce in PSEI . There was a similar dead cat bounce in NYSE. The trend is downward slide if the Fed continues with its policy of withdrawing $$50B monthly.

      Since April, the $ has been on a relentless upward climb. It is now at the 94.5 level in the US$ Index chart. (This index is the weighted average rate of $ against 6 major currencies, the base year is 1973). The fact the EU central bank is still pursuing QE policy (with negative rates at the moment) accentuates the situation. The financial markets are in a very dangerous situation..

      Many have voiced a catastrophe coming for some time (I share this sentiment) because the financial market has been a mess for a while and it’s not sustainable. Something has to give. When the market is flooded with liquidity and debts and asset prices build up to extreme levels, and the rug is pulled from everyone’s feet by withdrawing the liquidity, the house will crumble.

      The trade war coming against this financial backdrop makes for a perfect storm.

      If this is not enough for you, China’s is facing an immense corporate bond default. This will cascade into it’s financial system. and trigger panic, One may be forgiven to imagine that the timing of the Fed policy and Trump’s trade war is a conspiracy to deal the dragon a massive knockout blow.

      Given this scenario, don’t be surprised to see Chinese-funded infra projects in Philippines grind to a halt due to financial problems of the contractors. It will look like the Enrille-owned property that’s abandoned half-way, dirty, horrible uncovered steel protruding. an ugly plot along posh Ayala Street in Makati that has remained in its decrepit state for decades.

      • karlgarcia says:


      • Yes, I recall you had warned before of catastrophe ahead. I do think Trump thinks of win and loss in hard, bold terms, and it sure looks like he intends to bring China to her knees if China does not agree to moderate her ride on US taxpayers, consumers, and businesses. I have not observed the policy being sold in any terms but vague unfairness that is costing the US 500 billion per year.

      • Micha says:



        Trump’s tariff war has no strategic plan. He is just playing to his base to appear to get tough on China because the midterm election is coming.

        The Fed’s raising of interest rates and quantitative tightening is a policy position from what they see as a sufficiently recovered US – and by extension – global economy.

        The catastrophe that you predicted before is because of the $19 trillion US debt, not the liquidity drought.

        Please make up your mind.

        • chemrock says:

          Well you are most likely right about Trump and Fed manouevres. When I said conspiracy, I did say imagine,. or should I say assume, as economists are wont to do.

          I did’nt confuse between the 2 — US$19T debt and the bond/equity markets. I wrote about the debt, and made many comments on the bond/equity market. I’m on the other side of the fence that thinks a catastrophe are looming for both.

          For bond market, no less than Alan Greenspan warned recently that the US is in a bond bubble. Some bond market players have called this a supernova, ready to explode any time. The bond prices now are in a 10 year high. Just imagine this, every security asset in the world is priced-influenced by the 10 year, so go work out the impact.

          As for the $19T debt, it’s not a question of IF, but WHEN. That US$ demand remains inelastic has much to do with the world requiring currency in a trusted currency, and a world where alternatives do not exist. It’s a question of WHEN this trust dissipates.

          We have seen how emerging market countries crumbled when external borrowings go under stress ((Mexico, Thailand, Argentina etc). US debt will not cause this kind of EM currency meltdown because their debt is in their own currency. No I’m not joining your MMT bandwagon. I’m saying US has other options if it fails to fix their finances — inflate or devalue is a way out. But there will be untold sufferings.

          I appreciate your view differs, which I can sum up with this joke :
          “A student falls asleep in a Milton Friedman lecture. Old Milt, not feeling too happy about this, waits for the student to wake up, then asks the student “Can you please provide the answer to my last question”. The student says “Well I didn’t hear the question, but the answer is ‘increase the money supply’ ” .

          • chemrock says:

            Correction : I meant the bond yield, not the price.

          • NHerrera says:

            I like the joke! Which leads me to a question: which jokes are the more plentiful and generate the most laughter, the ones about economists or the ones about lawyers? One answer: Trump. (Corny, I concede.)

          • chemrock says:

            Opps sorry again:

            “That US$ demand remains inelastic has much to do with the world requiring currency currency in a trusted currency….”…
            I meanT to say …
            “That US$ demand remains inelastic has much to do with the world requiring LIQUIDITY in a trusted currency….”…

          • Micha says:


            Again more nonsense.

            That $19 trillion figure has now ballooned to $24 trillion and you predicted a catastrophe within 2 years back in 2015.

            It’s amazing how people like you have been predicting this so-called ticking time bomb that could blow up anytime now since way back 1940 and they are much like the end-of-the-world-Christ-is-coming-again prophets of doom that have been proven wrong over and over again but refuse to admit error.

            There may yet be hope for you though when you concede that a default is impossible for the US because it borrows in its own currency. You’re on solid MMT ground with that. You could have stopped there and you would have been alright, but no, you try to save face by saying it can go the route of inflating and devaluing which can only be applied to non-monetarily sovereign countries like Italy, France, Germany, Greece and the whole euro zone area and third world countries like the Philippines which borrow in currencies other than their own.

            I’ve said it before and I say it again. There are many factors that could bring the US economy on its knees, like this reckless tariff war started by the orange haired buffoon in the white house, but the so-called unsustainable debt is NOT one of them.

            And yes, the Fed and other major central banks in the world did increase the money supply in response to the 2008 crisis. Did the sky fell down and catastrophe struck as a result of that?

            Why are you now instead ruing that they are pulling back the liquidity bonanza and predicting yet another catastrophe?

            Ano ba talaga Kuya?

            • chemrock says:


              1. “…you predicted a catastrophe within 2 years back in 2015.”
              In my old blog “Demystifying-the-american-US18-trillion-debt” this was what I wrote in the conclusion :
              “The world is not waiting to be driven over the financial abyss and has made moves to marginalize the use of US$ as an international currency. Over the next 2 years, these moves will become more evident.”

              A careful reading of that shows no attempt by me to predict a catastrophe in 2 years. The reference was to non-$ trades killing the petrol dollar and the US$ generally. And indeed, the moves to marginalise the $ intensified in the years 2015-2017.

              My opinion remains unchanged. The huge debt will drive the US into a financial abyss. It’s a matter of WHEN, not IF. It’s just my opinion. nothing to do with prophets. I see no serious attempts by the US to fix their financial problems that can persuade me to change my opinion at the moment.

              2. “…you concede that a default is impossible for the US because it borrows in its own currency.”
              I concede nothing. Take Thailand for example. It’s debt is in $, so it can’t print $ to get out of debt. It if prints lots of Baht, the value does down and they are hit with high inflation. For the US, they can print $ to pay off $ debts. Am I arguing myself into a corner with the MMT conundrum? No. I was merely saying the emerging market type of melt-down will not happen with the US. With Thailand, inflate or devalue, they hit themselves because foreign products and debts all become too expensive for them in Baht terms. For the US, inflate or devalue, they hit the creditors because it becomes cheaper for them to pay off debts. BUT as I explained in my ” Demystifying” article, all currency created cannot be destroyed, and when the roosters return, you have a Weimar Republic in US. So inflate or devalue, in the case of US, is an implicit or stealth default. They can get out of the debt problem, but end up with a Weimar Republic problem.

              3. “And yes, the Fed and other major central banks in the world did increase the money supply in response to the 2008 crisis. Did the sky fell down and catastrophe struck as a result of that?”

              The Fed and other central banks response to the 2008 crisis did not resolve the underlying problems of the financial crisis. They merely kicked the can further down the road and the long period of excessive QE policies have now exacerbated the situation. The huge amount of liquidity poured into the markets did not go into the economy, for if it were so we would be having international growth instead of just chugging along for 10 years. In QE exercise, the Fed built up its balance sheet. It buys back bonds, and the cash it released goes went into further debts as companies take advantage of cheap money. A lot of these debts went into sahre buy backs and other asset acquisitions. All those cash mostly went into 3 tin cans — Equity, Bonds (debt) and Housing markets. You can only push so much cash into the tins before it bulge up and explode. But this time the explosion will be worse because more cash has been stuffed into the cans than 2008. And this time, the people who caused it are the central banks.

              There were loud voices of concern in the past catastrophes but nobody back then believed the could burst, nor 2008 could explode. In the swinging 20s, nobody believed the 1929 recession could happen. Nobody wants to hear bad news.

              4.” Why are you now instead ruing that they are pulling back the liquidity bonanza and predicting yet another catastrophe?”

              The implication here is I flip flop my explanation. Indeed I do. That is the nature of the beast. The markets are dynamic and the interplay of factors that has a bearing on markets changes all the time. So explanations at any point in time may change because the dynamics have changed.

              I ask for the indulgence of Joe to post this long explanation here in the interest of readers who want some understanding of the matter. This is digressing too far from the blog. My apologies.

              This question requires diving into some understanding of the fixed income market which is very complicated. I’ll just go as basic as possible, no esotoric discourse. For those who are interested, I dare say you won’t any such explanation in the archives of all your local media. This is not a boast, but a fact.

              A). When economy was down in 2008, Fed pumps money into market by QE. Through market operation, Fed buys in securitites, ie built up balance sheet. The liquidity pumped out into the market will revive business. Problem is, with too much cheap money, the market took advantage and use it for all sorts of purposes and not just strictly on its business. As a result, equities, housing and derivatives markets hit the roof. Assets were all priced upwards to very high levels.

              B).Because there were so much cheap money around, debts were priced very low. It was an era where bond yields were in negative territory for a long period of time. Is there anything wrong? Simply resources being mis-used.

              C). When the economy picks up, the Fed rightly stops the QE. Employment picks up and inflation follows. Fed increase interest rates to tame inflation. Nothing wrong with this move. It’s textbook.

              D). Fed reduces liquidity by market operation — sell back securities so cash backflows into Fed, ie the Fed reduce its balance sheet. This has to be a calibrated move. Too little, no effect. Too much, lots of side effects. Fed started withdrawing liquidity by $10B monthly, then up it to $30B monthly. They are preparing for $50B monthly.

              E).The withdrawing of liquidity saw bond yields beginning to rise. Nothing wrong with that. The market has to reset itself. Normal correction, which is healthy. It is a question of how fast and how much the yield will rise, or how much bond prices fall (inverse co-relation). Too much and too fast is no good for the market.

              F). Why is the speed and extend of rising bond yields critical? To understand this you need to know what the “Yield Curve” is all about. A yield curve is a chart that plots the interest rates, at a specific point in time, of bonds having equal credit quality but differing maturity dates. It plots interest rates for terms like 3 months, 2, 5, 10, and 30 year terms. For US, it relies on the Treasury bills/bond, which are considered as risk-free securities. Every currency in the world needs to have a yield curve, without which there is no basis for rate fixing other than by government policy. This is the benchmark for pricing every other asset in the market — for mortgage rates, bank lending rates, all sorts of derivatives. It is also the basis used for all sorts of financial computation. When businessmen looks at financial plans for various projects, they are computed by accountants that depends on this yield curve to compute net present values, or discounted cashflows, etc. Economists rely on this to predict economic output and growth. Actuaries use this to compute insurance premiums and fund life. Long-dated forward exchange rates rely on this to compute. Options, interest swaps, currency swaps, all sorts of vanilla products and exotic derivatives also rely on it. Etc etc.

              G). To be a good benchmark, the yield curve should be as steady as possible. The yield curve depends a lot on long term Treasury bonds. So how do the market price these long term bonds? Short term interest rates is a function of supply and demand. The long terms — 10 years / 30 years, depends on market expectations. Many variables come into play to assess what such rates should be — economic outlook, inflation forecasts, employment data, world trade, second guessing Fed’s moves, etc etc. Based on these assessments, market players take a long view on interest and bid for the Treasury bonds accordingly. Note that the yield curve is not dependent on market or corporate fundamentals, but market expectations.

              H).So these long term bonds affect the yield curve, thus indirectly, the yields on these bonds affect every other financial product pricing in the market. Short term interest rates like overnight or 1 week is volatile as its due to supply-demand pressures. Long term rates are not volatile and changes are normally gradual.

              I).What is happening is that the bond yields started climbing since Jan/Feb this year. From negative territory it is now about 2.85%, an upward swing of about 3%. This may seem like a small number to most, but in bond trading, this is a very huge figure in a very short span of time. This is going to affect all other asset pricings. In order to make money, bank lending rates will shoot up North, making cost of business more expensive.

              J). So what is driving up the bond yields? Brave is the one to point to one single reason. It’s always a mix of factors. The retiring of too huge a sum of cash by the Fed is one factor. Withdrawing liquidity means selling bonds in market operation. To sell more, price it lower and yields rise. Other factors may be market sentiment. A market that is sensing a huge overhang of debts and that a bull run can never be permanent needs just one moment to trigger a deluge. Bond market plays on inflation. Market players don’t share the Fed’s confidence on the inflation level. Recently enacted tax cuts adds fear the fiscal boost at a time of high employment levels will heat up the economy. Trumps announcement of $4.4T budget deficit next year just piles on the jittery on higher inflation (even though it is unlikely the budget will be passed).

              K).What is the impact on Equity markets?
              To read the minds of big players, you need to understand something called “Real Yield”. Bond yields itself does not impact these players directly. They take their cue from Real Yields which are inflation-adjusted rates. This is basically the difference between bond yields and future expected inflation. Normally Equity index will positively co-relate with Real Rates index because Equity goes with the heat of the market. But when the Real rates open up, high risk assets take flight. In the chart below, you can see the co-relation of Equities to Real rates until 25 Jan when the Real rate hit 0.55%. That’s the market tolerance for high risk assets. That’s when the Equity index starts to drop as portfolio managers rush for the exit.


              L). The catastrophe I spoke about is due to a congluence of factors :
              (I) the contagion playing out
              (ii) asset prices are at record highs, even higher than previously in 2008
              (iii)debt levels are extremely high levels never seen before in history (due to decades of cheap money)en though there is no guarantee the budget will be passed)

              AND FINALLY :
              When it comes to assessing the markets, I pay heed to big portfolio managers who smells the market every day, who understands what evey pip movement in every chart means, who has lunch and dinners with market counter parts and have a deep understanding of what’s going on, and who are playing with real multi-billion $ portfolios. I’m not down-playing professors in lecture rooms. They have important roles and contributions to make. But in buzzling world of the actual markets, the professors are often behind on the curve.

              All the market dooms of the past were all highlighted by market players and we all know ivory tower economists predicted the 10 inflation out of the last 4.

              • karlgarcia says:

                Thank you Chem and Micha.

                It is during these times that I miss RHiro, but he went ahead of us.

                I think you guys are young and healthy enough to enlighten us pa more.

              • chemrock says:

                You are welcome Karl.

                As you can see, I posted the comment about midnight. Had to struggle with a faulty keyboard.

                There is no one-upmanship here. I just thought there is an absence of explanation on something that is very important and I want to share.

                @ Micha, I know you are a MMT fan, so our views are worlds apart. You wrote something on MMT once, but more from a scholarly angle. Why don’t you explain in another blog, or comment here, how MMT can solve the national debt problem — the $24B thingy. Explain it in practical terms, like showing us the flow of money, who prints what, who pays who, where the money goes to. Don’t use terms like digital and click of mouse and debt disappears approach.

                Not being sarcastic, but really on a learning and sharing desire.

              • karlgarcia says:

                I tried to explore and understand MMT, the moment I heard about it from Micha.

                Years have passed, maybe Micha is right, I am a slow learner, but I am so sure that I am not alone regarding this subject matter.

      • NHerrera says:

        President Duterte is scheduled to give this year’s SONA on Monday, July 23. Roque advertised that Duterte will speak on something ‘close to his heart.’ One would think that the state of the country’s economy will be close to his heart with the effects of the surging inflation, depreciating Peso and the biggie — the negative but still unclear extent of the “trade war” unleashed by Trump and the retaliatory moves by the countries affected. Also, as already cited the Build Build Build Program as well as the expected 7% economic growth will be affected. But Duterte himself admitted way back that he will leave the economy to his Economic Managers. So we will see what the President talks about at the SONA.

        • chemrock says:

          I’m not waiting with abated breathe for his SONA>\.

          He will veer off script, and hand on cheek, he will go into his monologue. The speech writer’s efforts all in vain. Here’s the truth why he often goes off-script. He does’nt do his homework. It’s easier to go monologue impmptu than to spend hours memorising a speech written by someone else.

  25. karlgarcia says:

    Is urban farming the answer to rapid urbanization and food insecurity?

  26. Micha says:

    Worst Cha-Cha ever! No to federalism. No to charter change.!

  27. Sup says:

    And now RESIGN !!!!!!!

    The Philippine president, who recently sparked outrage for calling God stupid, has courted new controversy in his largely Roman Catholic country by saying he will resign if anybody can prove that God exists.

    Duterte says God talked to him on the plane: I promised to stop cussing

    Please DO IT ASAP ::::::::::FOREVER !!!!!!!

    • I discourage contributors from making such overt expressions on this blog as people might gain the wrongful impression that the blog has a political purpose. Our purpose is knowledge and insight, not political activism. I will note that this is your personal view, and it does not necessarily reflect the views of the blog editor or other contributors.

  28. chemrock says:

    SONA? Better to ask the farmer.

    Stable, growing economy :
    You have 2 cows. They have been producing 20 pints of milk daily since 2010. The government says they helped you to increase the cows’ lactation. You squeeze like hell but the cows are still producing 20 pints every day.

    Crime reduction :
    You have 2 cows. One day, some men on motorbikes came. You did’nt know why they were wrapping musking tapes over 1 of the cows. Then they shot the cow. Now you have only 1 cow.

    Poverty reduction :
    You have no cows. The govt promises to get you 2 cows. But you need to pay a milk tax first. Meanwhile, you are still waiting for your cows,

    Peace in Mindanao :
    You have 2 cows. Life was good and you even built a nice cowshed for the cows. Then the government invited terrorists to your city. The soldiers came and all hell broke loose. You barely escaped the fighting with nothing except the clothings on you. Now the war is over and there is peace. You returned to your city and your house, cowshed and and cows are all gone.

    Harmony with China :
    You have 2 cows. The government gives away 1 of the cows to China. The government has faith in the Chinese not taking away your other cow. The Chinese are very magnanimous. They will allow you to milk the cow that was given away to them if you apply for a permit.

    Infrastructure development :
    You have 2 cows. You know the government infrastructure projects will bring lots of jobs, opportunities, and improve everybody’s livelihood. You are not educated, but all these golden infra era thingy have been drummed into your brain. You are inspired visualising the spanking new bridges, highways, trains. Everyday you are imagining the new world Philippines. Hey, you have the right to feel proud, but meanwhile, don’t forget to go milk your cows.

    Human rights :
    You have 2 cows. You do not tell cow jokes. You get butchered for it.

    Corruption :
    You have two cows. Someone asked you to take part in a government tender for supply of cows. But you were suspicious so you went to the office to find out more. An official told you it’s better to discuss at your house later. That night the official came together with someone who said he is an attorney for a Congressman. They demanded that you have to offer them something so the deal can be fixed. You have nothing on your table to give them, neither have you anything to pass them under the table. So you gave them your table.

    Federalism/Constitution rewrite :
    You have 2 cows. The government said the central government in Manila does not understand your problems. They will chop the country into 18 states. They need to do lots of things first like draft new constitution, con-con or cha-cha resolution, hold a plebiscite, adopt new constitution, have a transitional period, elect federal members of parliament, create state constitution, create state administrative offices and institutions, elect state senators and members of parliament, etc etc. Wow so much work and you wonder how, after all these have come to pass, will they know your problem. All you were trying to ask was if they could help you get a proper stool so you can be more comfortable sitting down to milk your cows.

    • edgar lores says:

      Human Rights

      You have 2 cows. One day, a drug addict runs across the field trying to escape two guys riding in tandem. They spray bullets indiscriminately. One of your cows is hit. He is a collateral damage. Some days later, the remaining cow is grazing near the fence. He is arrested for being a tambay.

      • Sup says:

        I discourage contributors from making such overt expressions on this blog as people might gain the wrongful impression that the blog has a political purpose. Our purpose is knowledge and insight, not political activism. I will note that this is your personal view, and it does not necessarily reflect the views of the blog editor or other contributors. 🙂

        • karlgarcia says:

          Careful Sup. We do not want to test Joe’s or any other contributor’s patience.

          • karlgarcia says:

            My First Time

            The sky was dark
            The moon was high
            All alone
            Just her and I
            Her hair so soft
            Her eyes so blue
            I knew just what
            She wanted to do
            Her skin so soft
            Her legs so fine
            I ran my fingers
            Down her spine
            I didn’t know how
            But I tried my best
            To place my hand
            On her breasts
            I remember my fear
            My fast beating heart
            But slowly she spread
            Her legs apart
            And when she did it
            I felt no shame
            All at once
            The white stuff came
            At last it’s finished
            It’s all over now
            My first time
            Milking a cow!

        • @Sup, The advice was given to you to permit the blog to keep publishing. It is not a trivial matter.

  29. Micha says:

    Continuing the conversation with chempo here on a new thread.

    1. In your Nov. 2015 article about all the terrible things that might happen as a consequence of the huuge $19 trillion (at that time) US gov’t debt you use phrases like “demise of the dollar”, financial panic”, “financial abyss”, “US has no choice but to default or face inflation”, “biggest economy in the world goes into a tailspin”.

    These are clearly nothing but alarmist non-sense not very different from the woo-woo predictions you will hear so often when you turn your TV channel to Fox News and other right wing propaganda machines.

    The stubborn certainty that all this will happen sometime in the future (matter of when, not if) is not deterred by the fact that the Armageddon alarmist has been doing this since the 1940’s when the debt was just a few million dollars.

    Back in 1940, the federal budget was a “ticking time-bomb which can eventually destroy the American system,” said Robert M. Hanes, president of the American Bankers Association.

    By 1983: “The debt “probably will explode in the third quarter of 1984,” said Fred Napolitano, former president of the National Association of Home Builders.

    In 1985: “The federal deficit is ‘a ticking time bomb, and it’s about to blow up,’ U.S. Sen. Mitch McConnell.

    Later in 1992: Ross Perot: “Our great nation is sitting right on top of a ticking time bomb. We have a national debt of $4 trillion.”

    In 1995: Kansas City Star: “Concerned citizens. . . regard the national debt as a ticking time bomb poised to explode with devastating consequences at some future date.”

    In 2003: Porter Stansberry, for the Daily Reckoning: “Generation debt is a ticking time bomb . . . with about ten years left on the clock.”

    In 2007: USA Today: “Like a ticking time bomb, the national debt is an explosion waiting to happen.”

    In 2010: Reason Alert: “. . . the time bomb that’s ticking under the federal budget like a Guy Fawkes’ powder keg.”

    In 2011: Washington Post, Lori Montgomery: ” . . . defuse the biggest budgetary time bombs that are set to explode.”

    In 2014: CBN News: “The United States of Debt: A Ticking Time Bomb”

    See the pattern? There are more of these stubborn alarmist down the line and in between and if it’s any consolation to you, you are definitely not alone in the perceived cluelessness department as to how the finances of a monetarily sovereign federal gov’t works.

    To paraphrase something Albert Einstein supposedly said, “Insanity is saying the same thing over and over again and expecting different results.”

    2. “For the US, they can print $ to pay off $ debts.”

    No, chemp, you are getting this all wrong. So called federal debt is the total Treasury Bond deposits accumulated over time. Think of it as savings accounts that are no different from the ones private individuals open in private commercial banks. No printing is ever necessary to pay off the debt aka savings accounts.

    Let’s say you wanted to buy a Treasury bond worth $1 million. What the Fed does is debit your checking account and credit your Fed savings account by $1 million. When the bond matures in say, 3 years, and you decide to collect all including interest, then the process flow simply goes reverse : electronically transfer specified amount back to your checking account. That’s it. No printing necessary. Your deposited money didn’t go anywhere. It wasn’t used to pay the White House lawn keeper or anything. It just sits there, very safely, at the Fed, earning interest.

    “So inflate or devalue, in the case of US, is an implicit or stealth default.”

    Pure nonsense. All growing economies inflate and devalue over time. A stable and desirable rate of 2 to 3% inflation is the policy goal of US policy makers and they have been doing excellent job on this for decades. Controlling the value of the dollar is the sole province of the Fed by adjusting interest rates.

    3. “In QE exercise, the Fed built up its balance sheet. It buys back bonds, and the cash it released went into further debts as companies take advantage of cheap money.”

    Ok, so the Fed supplied liquidity to, and stabilized the financial standing of private financial institutions. You have no problem with that, right? How they, the private financial institutions, used that money is not anymore the province of the Fed. Will their careless and irresponsible behavior result in another crash? Probably. Probably not.

    But to then say that the probable crash or the projected catastrophe will be caused by the $19 trillion (now $24 trillion) debt of the federal gov’t is completely illogical. It doesn’t wash and it doesn’t rhyme.

    4. Your long winded explanation at 4. doesn’t square with your assertion that a catastrophe is imminent because of the gargantuan $24 trillion federal debt. You were actually assessing risks emanating from private market behavior and dynamics.

  30. chemrock says:

    (1) Thanks for all those old timer alarmists. Granted it does provide some perspective. However, there is a world of difference today compared to the past. Uncle Sam is’nt as powerful as before financially and the greenback is no longer so venerated. US Treasury bonds is defacto risk-free assets to Americans. It used to be accepted as risk free to financial institutions all over the world, but no longer so. The ground has changed, that’s the difference. And whilst the perception of risk free status has gone down, the debt figure has exploded. Everybody outside the US understands we are funding the Americans for their standard living. The US is putting a gun to our heads because there is at the moment no alternative strong currency for a world reserve currency, but countries are working their way around the problem. My contentions is many countries are abandoning the $. 23 countries representing 60% of the world’s GDP have set up swap arrangements which bypass $ and SWIFT altogether. Many are cutting down on $ reserves and moving into gold and other basket of currencies to park their reserves. Petrol $ is diminishing. My contention is that all these marginalising of $ will impose a very difficult challenge for the US resulting in the demise of the greenback. Particularly if the US does not bother to try to fix their finances. Trump is asking to double what Obama spent for next year’s budget! You and many other denialists, not necessary with consensus of reasons, but mainly standing on the strength of the past ability of the $ to continue the status quo in the face of many challenges.

    Yes “Insanity is saying the same thing over and over again and expecting different results.” But recklessness is closing the eyes and minds to the change in market dynamics and believing that a bull run is perpetual.

    We just have to agree to disagree.

    (2-1) “Let’s say you wanted to buy a Treasury bond worth $1 million. What the Fed does is debit your checking account and credit your Fed savings account by $1 million……..Your deposited money didn’t go anywhere. It wasn’t used to pay the White House lawn keeper or anything…”

    I don’t understand your explanation. If the White House don’t need the money, what’s the point of issuing the Treasury Bills? Where is the govt debt?

    A Treasury Bills transaction in the primary market involves 3 parties (leaving out the intermediary correspondent banks) :
    – Treasury Dept that issues the Bond and pockets the proceeds for budget expenditure.
    – The investor, the ones like Chinese central bank and Bangko Sangtral and Goldman Sachs etc, who cough out the money for Uncle Sam to use.
    – The Fed, who has 2 functions. (1) helping Treasury Dept to sell off the bonds (not directly, but through the buddy buddy banks of Fed shareholders who earns fat commissions), (2) as the book-keeper of Fed Reserve accounts of banks in US.

    The book-keeping in the 3 parties are like this :

    Treasury Dept — CR Bonds Issued (that’s the national debt)
    DR Bank a/c (don’t know where they keep it, let’s say with the Fed). The Treasury
    will disburse to various govt Agencies for them to use, such as
    paying the White House gardener.

    Investor ———- CR Fed a/c — to pay for the purchase
    DR Securities a/c — representing claims on the US govt

    Fed —————- CR Treasury Dept’s a/c
    DR Investor’s a/c (correspondent bank’s a/c)

    (2-2) “So inflate or devalue, in the case of US, is an implicit or stealth default.”
    “Pure nonsense. All growing economies inflate and devalue over time. A stable and desirable rate of 2 to 3% inflation is the policy goal of US policy makers ”

    We are in agreement with the 2nd sentence.
    The first sentence was mine that you quoted. I was referring to the fact that emerging market type catastophe like Argentina wont happen with US because the US debt is in $. But US can do a technical default by allowing high inflation which means the national debts become cheaper in $ terms. Of course inflate means devalue, which means horrific problems. Hence the catastrophe mentioned so often.

    (3-1) “How they, the private financial institutions, used that money is not anymore the province of the Fed.”

    Of course it’s the market, the fat cats of Goldman Sachs, who mis-use the liquidity. But it’s the Fed policy that fed into the market liquidity rather recklessly.

    (3-2) “But to then say that the probable crash or the projected catastrophe will be caused by the $19 trillion (now $24 trillion) debt of the federal gov’t is completely illogical.”

    This is the cruz of the discussion. Investors that want out dispose of the securities in the secondary market. Or they hold to maturity. (With yields rising like crazy as I explained in my comments, more are likely to cash out than hold to maturity). But let’s imagine all the bonds matured — the whole $24T. That’s why I requested if you will attempt to work out a cashflow and see where the money goes. Your position is the debt will do no damage to the US. It’s like it is a virtual debt, nobody gets to shoulder any burden. Explain the cashflow then we see where it leads.

    My contention is the debt is a claim on US assets. Somebody ends up paying.

    4. “Your long winded explanation at 4. doesn’t square with your assertion that a catastrophe is imminent because of the gargantuan $24 trillion federal debt.”

    Right. It is a completely different thing. It’s about a different financial problem, not the national debt. But one that has huge repercussion because of the size of the bond market and it’s contagion effect. Perhaps my use of bond and debt interchangebly confuse you, I apologise. But market terminology uses bonds and debt in the same breadth. Securities are debts.

    Because the bond market is in turmoil the past 6 months and many people are alarmed (including Greenspan who said the bond bubble is bursting) I set out to explain what the problem is and the possible repercussions and why I fear a likely catastrophe. What I explained was very basic for a very complicated subject.

  31. Micha says:

    “If the White House don’t need the money, what’s the point of issuing the Treasury Bills? Where is the govt debt?”

    And that, dear chempo, illustrates the whole charade of calling it a debt. It is here finally when you can realize the utility of not anymore calling it that but savings. Savings of private individuals, corporations, pensioners, foreign entities, foreign governments etc. Those are savings that need a bank to be deposited on so it can earn interests. No one is holding a gun to their heads so they will purchase those treasuries. They park it at the Fed because it’s the safest instrument for their savings.

    The federal gov’t don’t need those savings. The practice of borrowing was a remnant of the gold standard days. It’s a charade that was carried over from the time before 1971 The practice of issuing bills and bonds continues to this day as a matter of habit, not of necessity.

    As long as congress pass and authorize the legislated spending bill, the money will flow from the treasury through sovereign fiat in much the way that Bernanke provided the liquidity bonanza to troubled financial institutions in 2008.

    If you have no problem accepting QE money for the private financial institutions, you won’t be so squeamish in your protestation that it can do the same for the federal budget.

    Are you seeing the light now?

    • chemrock says:

      Absolutely not seeing any light.
      And I don ‘t think that I’m that dumb. No offence meant, but I really don’t understand.

      Hoping someone here can rehash your explanation for me.

      I just cannot see why Treasury dept issues a debt instrument and don’t collect any receipts.
      I just cannot see how Treasury disburse funds to other depts of the government to pay off expenses.
      I just cannot see how a purchase of a security by a bank is viewed like a bank deposit.

      You are saying a bank buys Treasury bill is actually them parking their money in Fed to earn interest. So there is no govt debt. Just like individuals depositing into savings accounts in a bank.

      Look at my querry in this way.

      A customer goes to a bank to deposit into his savings account. So what is the position of the bank? It has cash (asset), it has liability (customer’s savings a/c balance). So what do banks do? They use the cash to earn revenue so they can pay interest to the customer. That’s the business the bank is in.

      Now, from your explanation. Bank buys Treasury Bills, it’s like making a deposit. So Fed debit banks checking a/c (actually its called the reserve a/c) and credits bank’s savings a/c (actually there are no such facilities at the Fed). What you are saying is this :

      – Bank’s status at the FED is ZERO (debit cancels credit). So with a zero value transaction, banks can now earn interest.
      – Who pays the bank interest? The Fed? Where does the Fed get the money to pay the bank? And why should the Fed pay the bank? Is the Fed in the business of running a commercial operation?
      – So the Treasury is completely out of the picture even though they are the one issuing the bonds. But in the Treasury’s balance sheet is a liability a/c called Treasury Bills Issued which now has a credit balance in Treasury Bills Issued of $24T. Where are the debits to those credit entries?

      • karlgarcia says:

        Our man caliphman maybe free one of this days.

      • Micha says:

        1. “You are saying a bank buys Treasury bill is actually them parking their money in Fed to earn interest. So there is no govt debt. Just like individuals depositing into savings accounts in a bank.”

        You are almost there chemp. The whole treasury buying transaction is exactly like a customer depositing his money in private commercial bank. The only difference – the most important difference – you need to keep in mind is that the Fed, the bank of all banks, the supplier of liquidity for your troubled financial institutions, the provider of QE, the lender of last resort does not operate like your private commercial banks. As the only authorized bank of the monetarily sovereign federal gov’t it has the unlimited ability to create fiat money. Remember Bernake’s statement to Scott Pelley on 60 minutes? Here it is for your convenience and as a reminder. The money quote starts at 7:58.

        2. “Who pays the bank interest? The Fed?”


        3. “Where does the Fed get the money to pay the bank? “

        For the principal amount of their deposit, it simply shuffles back the same from savings to checking. For the interests, it should be obvious to you now that there is no question that the Fed has the ability to create fiat money. You don’t need to make this complicated.

        4. “And why should the Fed pay the bank?”

        And why not?

        5. “Is the Fed in the business of running a commercial operation?”

        No,no, and no!

        • chemrock says:

          (1) We are back to this money creation at the click of a button thing and actual debt. You are confusing the digital money creation and the debt.

          In order to loan money to banks during the financial meltdown the Fed simply has to credit the banks reserve a/c at the Fed. So yes, the Fed does a mouse click and credits the banks accounts with them. That’s digital money creation. But it’s not giving freebies. It’s a loan. And so the Fed debits a loan a/c which is a claim on the banks. So yes, I get that, it’s all digital. But it’s a debt that the bank has to repay eventually.

          In the same way you go and borrow money from a bank. Bank credits your current account and debits your loan account. It’s digital. The only difference between the bank and the Fed is that the bank has a constraint in the amount of digital money they can create this way, which by the way is called fractional banking. Fed has no constraint. Bank has a Reserve Ratio constraint.

          I don’t wish to go into fractional banking, I just want to draw the parallel in the digital crediting of a customers a/c by a bank and the Fed’s digital crediting of a bank’s a/c. I’m just trying to explain it’s just a mechanism, nothing fanciful. Everybody knows that. The fact is that you always seem to imply a mystical Fed move that you see clearly and others don’t. It’s just a practical mechanism of digital crediting and debiting accounts.

          Now after the digital crediting, the customer has a loan to repay the bank. Likewise the bank has a debt to repay the Fed. There is no freebie. What the Fed pump money to banks every other central bank in the world can also do for their own currencies, but no other country has actually done it as far as I know. (Monetary sovereignty is a big word that I avoid here). There is nothing magical. It’s just a mechanism.

          Now we go to govt borrowing, which is a different thing altogether. They do it by issuing Treasury bills and bonds. Money flows from buyers to Treasury coffers. We avoid going into how the money flows via various correspondent banks but all money flows end up with the banks accounts in the Fed system. Bank A pays out, the Fed debits Bank A a/c. Bank B receives, the Fed credits Bank B a/c. In the case of Treasury bond issuance, substitute Bank A for investor, and Bank B for Treasury Dept. The Fed debits Bank A (correspondent bank for investors) and credits Treasury Dept a/c. Yes — done digitally. Did the Fed create any money for Treasury? NO – the money came from investors. Treasury now has money in their a/cat the Fed. Where did it come from? Not from the Fed, but from investors. Is there a debt? Hell yes, Treasury needs to repay the investors when the bonds mature.

          The digital crediting by the Fed is just a book-keeping mechanism. Investors have a claim on Treasury. Sure as hell there is a debt.

          4/5. These are not related to (1) above.
          Your answers self-implode. Fed of course has no commercial banking interest to banks?

          • chemrock says:

            Correction :

            4/5. These are not related to (1) above.
            Your answers self-implode. Fed of course has no commercial banking business so why are they paying interest to banks?

          • Micha says:


            You can call it debt of the federal gov’t.

            I can call it savings by depositors.

            And we are both correct referring to the same thing.

            Does the federal gov’t has an obligation to pay it back?

            Yes, in much the same way that a commercial bank has an obligation to their depositor to return, on demand, all or part of their deposits plus interest.

            Will the fed have difficulty meeting those obligations?

            Absolutely no.

            Unlike your private commercial banks which could potentially run out of money, the Fed is not constrained by money supply.

            Next question.

            • chemrock says:

              “Does the federal gov’t has an obligation to pay it back?”

              OK so you do recognise there is a claim on the govt — treasury bonds = savings = debts

              “Will the fed have difficulty meeting those obligations?”

              Therein lies the conundrum. The Fed is not the US government, does not belong to the US govt, is not controlled by the US govt.

              They are a private enterprise owned by your detested fat bankers – the Goldman Sachs. the Rockefellas, etc. These generous guys will pick up the tab for US taxpayers?.

              Please clarify by following the money trail… Show how the Treasury pay off the $24T debt. Don’t explain in the cloud fashion, mouse clicks and its cleared.. Show the funds movements from which account to which account. To simplify, let’s imagine the $24T Treasury bills are all in China’s hand. Now they mature.

              • Micha says:

                “The Fed is not the US government, does not belong to the US govt, is not controlled by the US govt.”

                The Fed is an agency of the US gov’t in charge of monetary policy. It has the mandate of maximizing employment, stabilizing prices, and moderating long-term interest rates. It was created by US congress in 1913 and its chair is appointed by the President subject to congressional confirmation.

                The Federal Reserve System is composed of 12 regional Federal Reserve Banks where private commercial banks are required to hold stocks and can elect some of the board members. US congress can, if it deems necessary, terminate the operation of the whole Reserve System.

                It operates with sufficient degree of autonomy because of the technical nature of its mission but it answers to public and congressional scrutiny. To state that it does not belong to the US gov’t is entirely false and any further discussion on the current topic will be futile, circular and unproductive if you contend otherwise.

                “Please clarify by following the money trail.”

                For all intents and purposes, the money trail is essentially and practically the same for all accounts that has already matured. Has there been any incident, either recently or in the distant past, where the Fed has failed to met its obligations to matured security accounts? Have you heard of any single incident where the Fed has defaulted or that its electronic checks did not clear and bounced?

              • chemrock says:

                Excuse the futile. circular, unproductive argument. Just to get to the bottom of things:

                1. The 12 Reserve Banks are not created by the Act of Congress 1913. The Act is only the legislation that sets out to govern the reserve system. Just like a Companies Act does not create any companies, it sets out to govern companies. So companies get incorporated under the Companies Act and likewise the 12 Reserve banks are incorporated under the 1913 Act.

                As to Capital — this is from the Fed Reserve website :
                “Each member bank of the Federal Reserve is required, by law, to subscribe to shares of its local Reserve Bank in an amount equal to 6 percent of its own paid-in capital and surplus.”

                They are incorporated just like any company. Subscribers pay up the capital and become the shareholders. Who are the owners of companies? Shareholders. Is the US govt a shareholder of Fed? — NO. It is not an Agency of the govt in the way Bangko Sentral is an Agency of the Philippines govt. It is a legally independent entity with tasks spelt out in the Act. Basically, the US govt outsourced their fiscal and monetary functions to the Fed.

                Tidbits — The 1913 Act was not the initiative of politicians, but the initiative of fat cat bankers. The Act got passed in an underhand manner. It was tabled and passed in Congress on a day when there was no quorum and Congressmen whose hands were greased passed the Act.

                2. Re money trail
                Again you avoid describing the practical aspect of how the $24T debt can be paid off. If you don’t explain the money trail you won’t see the picture. Your digression to since when has the govt defaulted does not explain anything. I explained in the National Debt blog there has never been any payment. The US does the ponzi by perpetually rolling over matured Treasury Bills. A new one is issued to replace a matured one. The debts never get paid, and meanwhile deficit budgets get larger and larger, that’s why we have the $24T. Our discussion is that there is a debt and your position is there will be no payment because the Fed can do their click click and the debt goes away. My position is debt represents a claim on US assets and somebody gonna end up feeling the real pain. I asked if you could describe the money trail for a debt repayment. From the money trail we can see how the debt can just get clicked away.

                (Clinton did reduce the national debt slightly)

              • Micha says:

                “Basically, the US govt outsourced their fiscal and monetary functions to the Fed.”

                Only the monetary policy, not the fiscal part which still rests on Congress. As I’ve said the Fed operates with relative high degree of autonomy. The reserve system’s evolution to its present form function and role were all sanctioned by congress and it is also the same congress which can put an end to the practice of issuing Treasuries.

                The federal gov’t regularly pays and retires matured bonds (including interests) but rolls them over because of this self-imposed congressional rule of borrowing for every yearly deficits in their legislated budget. Getting rid of that rule is central to MMT’s policy proposal in the Capitol Hill and replacing it with direct sovereign spending instead.

              • chemrock says:

                I sense our discussion is making some headway.

                First para I concur generally, except the abolishment of Treasury bills. Can’t be done for 2 reasons :

                (A) Whether it is balanced budget or deficit budgets, govt needs to borrow to ensure there is always a ready pool of money because the budgetary management is on cash basis, not accruals. Otherwise the White House gardener may not get his regular paycheck. T bills/bonds is the mechanism for the govt borrowing. (I know your reply is the sovereign lending thing — hold on a while).

                (B) T bonds serve a fundamental role in the US financial system. It help to benchmark the US$ Yield Curve. As I explained in my long-winding comment # (4) at the beginning of this discussion, the yield curve is the underbelly of all things about finance in the US, and ultimately it influence all things about finance in the whole world. Remove it, and all asset valuations of every financial product in the world comes crushing down.

                Re para 2 you said the borrowing by T bonds is self-imposed regulation of Congress and the MMT policy proposed at Capitol Hill seek to replace the T bonds with sovereign lending. Well the reason they cannot proceed is because they can’t repay the $24T debt of bonds, hence they survive by rolling over every time the bonds fall due.

                You always talk of sovereign lending per MMT but avoid explaining the cash flow. So I don’t know how it can be done. Based on your explanations so far, let me volunteer how the Fed can click click and create the money for Treasury dept. to pay off the $24T or future borrowings.

                The Fed clicks and :
                Credit – Treasury Dept current a/c $24T – (so now Treasury has the magical cash to pay off bondholders)
                Debit – But how is the Fed going to account for the debit side. It’s a debt due from Treasury right? OK since there was no real money involved just create an appropriate a/c. Let’s call it Special Treasury Debt A/c. There is nothing to repay. Nobody is hurt. Fed shareholder banks did’nt loose anything.

                The only thing is in the Fed balance sheet the Special Treasury Debt A/c will be there for perpetuity since there will be no repayment under MMT. OK it does no harm, just an eyesore. It does’nt represent the Fed shareholders claim on the US govt because no real money was extracted from them. Just put an auditor’s qualification in the Notes to Accounts.

                So going forward, for future budget spending, just do the same. Fed clicks and credit money into Treasury’s current account, the contra debit to the meaningless Special Treasury Debt A/c.

                Since you did’nt bother to explain the cashflow for how MMT will come to the rescue, that’s how I figured the Fed can click US the financial woes away and sovereign spend with no problems. This fits nicely to the idea under MMT there is no need for tax. Just click the money into existence in Treasury’s current a/c.

                Clap clap clap.

                The US national debt is solved by Fed clicking away and nobody got hurt.

                Oh before you fellas leave the room, there’s just one little thing.

                The click to the Treasury’s current a/c is real money. $24T was created to pay off the national debt, another $3T annually for budget deficits (Trump wants $4.4T for 2018 budget). These $ will find their way into various banks eventually and who knows how much fractional banking will further increase the money supply.

                Mr MMT is not telling you when a Mcdonald burger will cost $10,000.

              • Micha says:


                “T bonds serve a fundamental role in the US financial system. It help to benchmark the US$ Yield Curve.”

                Nope, yield curves and secondary markets for T-securities is the purview of financial parasites making money off money without contributing to the real productive economy. Issuance of Treasuries merely perpetuates the charade carried over from the time when the US was not yet monetarily sovereign.

                Both the primary holder and the financial parasites that trade these instruments love to perpetuate the charade for the fundamental reason of its profitability.

                An official act of congress terminating this practice will benefit the rest of the population except these financial parasites.


                As I’ve said, matured securities are being paid/retired/serviced regularly and faithfully by the federal gov’t and the process and the details of that transaction is the same exact process to be used for the extinguishment of the federal debt subject to congressional authorization.

                So your predictions about the federal debt as being unsustainable and will led to catastrophic financial armageddon is nothing but woo-woo top of the line fear mongering.

              • chemrock says:

                I’m afraid I have to disagree with you on 2 counts.

                First on the yield curve. Without this, financial transactions and valuations as we know it cannot proceed. How to price a 20 year mortgage? How to price insurance premiums? How to compute foreign exchange arbitrages? How to compute net present values? How to compute a value on a portfolio of securities? How to work out prices for various financial derivatives?

                Surely not determined by Congress? Might as well go the communist way, central planners fix everything.

                Yield curve is a basis of understanding market expectations of long term inflation and other factors. No single person set this. No fat cats determine this.

                Second on repaying of the national debts — you are consistently waving off the issue without show of how it’s going to be done in your way that does the country no harm.

                Once again we come to a dead end. Whilst I have my views which I express with detailed explanations showing the steps and the whyfores, you totally reject and refuse to detail the steps to show how MMT can get the US off the hook. In short, all you do is stamp a label “Monetary sovereignty” and say everybody is too ignorant to know and accept this better way of state financing.

                I was prepared to learn your way, but you are not showing anything.

                Economic theoretical wizardry is fine and beautiful on papers. But it has to be tempered by the realities on the ground, not the other way round. Yes there are weaknesses in every system that people take advantage of that result in excesses. But the beauty of free enterprise is that the system can reset and correct itself and hopefully strengthened to move forward. The problem of the US national debt is nothing to do with Congress not adopting MMT. The problem is the lack of political interest to fix the national finance. And now it’s too huge to fix.

                The problems of the financial system is multi-faceted and not due to a single class you call financial parasites. The wheels of all forms of human transactions, be it trade, finance, etc requires layers of middlemen players. None more so than in the financial industry. The guys in the middle play essential roles — like risk taking, provide liquidity, bulk breaking, last mile applications, innovation, deal making, deal transformation, and many many more. They are not parasites but the cogs in the wheel on which business and trade revolves.

              • Micha says:

                ” Without (the yield curve), financial transactions and valuations as we know it cannot proceed. How to price a 20 year mortgage?”

                Unbelievable how these financial parasites has given capitalism a dumb face. Sickening outrageous stupidity masquerading in technical mumbo jumbo no different from the complex derivatives and CDOs on sub prime lending which crashed the world economy in 2008.


                Second, which part of the “regular servicing by the federal govt of matured securities” you do not understand?

                I’ll make it simple for you. The federal gov’t is paying its debt obligation, both the principal and interests, regularly and faithfully.

                The process and the details of transaction is the same if it wants to pay the whole thing off.

                If you want to document the whole process go ask the Treasury Department or the Federal Reserve.


                “The problem of the US national debt is nothing to do with Congress not adopting MMT. The problem is the lack of political interest to fix the national finance. And now it’s too huge to fix.”

                Ah yes, national debt is a ticking time bomb that’s about to explode anytime soon. We thought it’s going to be last year but no, we’ll give it another couple of years, maybe. Or sooner. It’s really coming now.

                It’s a good thing if we could only balance the budget and get rid of those unsustainable debt but we also need to have that yield curve or we wouldn’t know how to price a home mortgage.

              • chemrock says:

                1. The yield curve lies at the heart of financial products. Since you have no appreciation for it and believe it to be some evil magic wane of those parasites, let’s leave it at that.

                2. “I’ll make it simple for you. The federal gov’t is paying its debt obligation, both the principal and interests, regularly and faithfully.”
                I wonder why it’s now $24T. Since you don’t wish to explain how it can be clicked away by the Fed, we;ll leave it at that. As to your suggestion I refer to the Fed for the process of the payment, it’s not necessary because I already know how it’s done and I have explained in vain continuously.

                3. “..a ticking time bomb”, An opinion, yet to be proven wrong.

                Thanks for the engagement. I wanted to know how MMT would have worked, but you are not sharing.

          • Micha says:

            Why does the Fed pay interests to depositors?

            Why not? Because it can. It sets its own interest rate. To zero percent if it wants to. To below zero if it deems necessary too; as in the case during severe recession.

            What’s your problem with the interest payment of the Fed?

            • chemrock says:

              “What’s your problem with the interest payment of the Fed?”

              Good question. My problem is this.
              You said when bank buys Treasury bills, the Fed credits the bank’s current a/c (I said it’s actually called Fed reserve a/c) and debit bank’s savings a/c (I said there are no such accounts in the Fed’s books; you said savings=debts ).

              Fed got no commercial banking operation, so they don’t earn any money from the bank’s deposit money. In fact, by your explanation, debit cancels out credits, there is no money for Fed to use and make any money to pay the bank’s interest.

              I know what you are trying to say. Fed can simply mouse click and create the money to pay the interest. And you are right, in as much as the much as the mechanism is concerned. OK so they click and credit bank’s current a/c, where is the debit? To interest expenses a/c right? So once again the kind hearted fat bankers that owns the Fed picks up the tab for taxpayers.

              Well you can say so what, Fed just clicked the money to pay off, nobody dig into their pockets. Again yes, correct as far as mechanism is concerned. But the interest expense is a Profit & Loss item, right? So when everything is squared off, where do P&L balances go to? Supposing the P&L consist of only one item, that interest paid amount. Now where will the debit or interest expense amount go to in the Balance Sheet? Well it goes to the section in the Balance Sheet called Equity where you find items like Capital, Reserves, and Prior Years P&L b/f. So net net it means the interest that theFed pays off to the banks are charged against their Capital. And just what is the Capital A/c in the Fed? That’s the actual money the Fed shareholder banks put in. So once again, the fat bankers pick up the tap for the government and taxpayers?

              So my problem with the interest payment by the Fed is that your explanation for Savings A/c and the Current A/c being credit by Fed for Treasury Bond issuance does’nt jive.

              • Micha says:

                “So net net it means the interest that the Fed pays off to the banks are charged against their Capital.”

                And right there is the source of your confusion. You still treat the Fed’s operation as similar to your ordinary commercial bank that needs capital. I thought we have already agreed that the Fed does not operate that way. It has the authority and the ability to create money by fiat. It is the originator of reserves, of money supply, of general liquidity in the whole US economy, why do you think it still needs a pool of its own capital?

                The capital requirement for the Fed is an illusion, part of the charade.

              • chemrock says:

                See my response above to the capital of Fed Reserve Banks.

              • NHerrera says:

                Chemrock, Micha:

                Although I have not yet caught the full drift of the exchange — not succeeded yet to completely give me my eureka moment no thanks to my advancing years ( 🙂 ), I am enjoying reading the exchange, especially since the exchange has evolved to a more professional sounding one compared to the earlier part.

              • karlgarcia says:

                Me too, NH!

              • NHerrera says:

                Meaning Advanced Years like me? Joke lang, karl ( 🙂 ). I know what you mean: us students watching Professors Chemrock and Micha argue before the class — what a treat. Or leaving us as confused as ever: another joke. 🙂

              • karlgarcia says:

                NH, a youtube video to add to our confusion, I mean enlightenment.

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