February 6: State of the Union, China Balloons, and Earthquakes

By Joe Noser, Rsearch Asscoaite

Editor’s note: we are late publishing this week’s Coming Down the Pike, so you can check Joe’s predictions in real-time.

Last Week

Last week I may have let my interests dictate what I thought would happen in the news. I was 1-4 on predictions.

There was no additional news on the Charles McGonigal front last week.

I'll continue to monitor this story, especially as we get closer to trial. 

As I predicted, the Fed raised the interest rate .25 base points to 4.50%-4.75%.

Fed Chair Jerome Powell did not explicitly say when the Fed will stop raising interest rates or – gasp! – lower them. I previously explained why he's pursued a policy of strategic ambiguity, and last week's economic news continues to support that theory. On the one hand,  gas prices are down, putting some deflationary pressure on the market. On the other, Friday's jobs report was bonkers: the U.S. added 517,000 jobs in January, a gigantic increase over the 187,000 jobs we were projected to add. Seems like that should be good news, right? It is for workers (competition is good!), but it's concerning for the Fed, which continues to see a hot labor market as a contributor to inflation. I don't expect the rate raising to stop until the labor market slows. 

You can hardly call last week's statements from the Freedom Caucus "clarifying" in terms of their debt ceiling position.

Speaker Kevin McCarthy expressed optimism about a deal when he left the White House on Wednesday, but he also insisted that no debt ceiling increase will be done without some spending cuts. What will those cuts be, you may ask? Well, actual plans are lacking. One specific option put forward has been the so-called "Fair Tax," which would disband the IRS as well as the current tax code, replacing it with a flat sales tax of 30%. Put forward by Rep. Buddy Carter of Georgia (seriously, that's his name), the bill is seen as radioactive by many Republicans because it's probably regressive and, according to one study, would raise household costs by $125,000 a year. But because McCarthy is not a good negotiator, he promised to let the bill go through committee when he persuaded the holdouts in his caucus to support him for speaker. Expect Democrats to make this bill a big issue. 

Separately, Rep. Andy Ogles (R-TN) – my parents' new Congressman – introduced another bill to cut spending: a repeal of the Inflation Reduction Act. Ogles' bill targets everything from the insulin price cap for Medicare patients to climate spending to drug price negotiations. The White House has called it a handout to big Pharma and a kick in the pants to Medicare. It represents a cut to Medicare that's not particularly popular.

Mainstream Republicans need to come up with specific cuts soon before the right flank of the party articulates their demands for them. I doubt such an expression will happen this week, however. Republican Problem Solvers Caucus chair Brian Fitzpatrick said Sunday that a clean raising of the debt ceiling (one without spending cuts) is off the table, but didn't say what he wants to cut. I think that remains the prevalent party line for as long as possible. 

So far, so good on any fallout from Israel's drone strike in Iran last week.

America's pals in Tel Aviv are not informing Washington of every strike before they happen, which definitely puts U.S. service members in Iraq and Syria at risk of timely reprisals from Iranian-backed militias. But since those reprisals haven't been timely – at least not yet – Israel will not change its policy anytime soon. Fast Times in Tel Aviv, folks. 

This Week

China will respond with hot air to America's shootdown of its spy balloon.

The further we get from Saturday's shootdown off the coast of South Carolina, the more ridiculous this story becomes. On Sunday, Fox News reported the balloon was not a one-off. In fact, the Pentagon said such balloons transited the U.S. multiple times during the Trump Administration – a charge Trump officials deny – and there is even a Chinese spy balloon currently floating over Latin America. This would track, as Bloomberg reported last week that the Biden administration wanted to keep the existence of the balloon quiet until local media in Montana reported on the balloon on Wednesday, forcing Biden's hand.

So, why did China use a balloon in the first place? Why didn't the U.S. shoot it down earlier? And how will Beijing respond? To answer the first question, think technology. Like the U.S., China has plenty of spy satellites and has us mapped top to bottom. But the satellites are too far away to intercept communications on the ground – think radio and phone chatter. That's where the balloon comes into play.

NORAD and the U.S. Strategic Command, which are charged with maintaining and operating the nuclear deterrent, have instituted new communications technology in recent years to increase the survivability of the nuclear triad. China wants to know how to exploit weaknesses in this communication chain in the event of a major nuclear war. That's why the balloon was floating over missile silo sites in Nevada and Montana. 

President Biden issued his shootdown order Wednesday, but after consulting with NASA, the Department of Defense held off on taking out the balloon until it got over water. That's because NASA said the debris field would be seven miles long, putting anyone in its path on the ground directly in harm's way. Space Force should've taken the lead on this, but no one has any idea what they do, so NASA it is.  

This is pretty embarrassing for China. Although everyone spies on each other, no one likes getting caught doing it. You know China is embarrassed when its consul general is making jokes about the balloon on Twitter. Secretary of State Blinken postponed his trip to Beijing in response, creating a tough look for Xi, who was trumpeting the Secretary of State's visit as an example of his willingness to pursue a detente with the U.S. The shootdown also challenges China's perception of America as a paper tiger. I expect some bluster from China this week, but outside maybe a fly-by near American bases in Japan, this will not escalate further.        


The earthquakes in Syria and Turkey will have significant geopolitical ramifications.

Southern Turkey was the epicenter of two powerful earthquakes Sunday night. The toll is severe: at least 2,300 people e are dead, and that number is expected to rise dramatically. (Editor’s note: the current count is perhaps 20,000). Additionally, the quakes struck in an area that's taken in thousands of Syrian refugees in recent years, many of whom are living in temporary/shoddy housing. This is a tragic, cruel story, and Turkey and Syria are going to need all the humanitarian aid they can get to rebuild.   

But there's a catch. Syria has diplomatic relations with almost no one in the wake of its brutal civil war. Turkey is also holding up Sweden's ascension to NATO over Swedish laws that allow for what Turkey sees as disrespect to the Quran. Senators aren't happy with the Turks and are threatening to hold up arms sales to them unless they let Sweden into NATO. That means the Turks will be negotiating for humanitarian aid from a weaker position. 

Nonetheless, I expect the aid to come. Earthquakes displace people, and displacement creates instability. No one wants more instability in the Middle East. Israel, which shares a border with Syria, has already declared that it's going to provide aid to the war-torn country, evil Assad regime be damned. I expect other wealthy Middle Eastern nations to follow suit, and the U.S. will likely be close behind. Whether such arrangements can revive some diplomatic ties in the region remains to be seen.   


The State of the Union will be a cringefest, but it could still be good for Biden.

President Biden will address the nation at 9 p.m. E.T. Tuesday from the House floor. His speech will focus on what was a busy second year for his administration, one that saw the passage of a signature policy bill (Inflation Reduction Act), the beginnings of a giant land war in Europe, 13 million jobs created in two years, and the rollout of the historic infrastructure bill that was passed in late 2021. He'll also address the PACT Act, the limited gun control measure Congress passed over the summer, and government funding. Much to the chagrin of the Republican caucus, he'll call out the Freedom Caucus for playing with the full faith and credit of the U.S. for spending cuts. He'll mention the need for more to be done to combat police brutality. And he might even declare whether or not he plans to run for re-election, although I wouldn't count on that. 

President Biden delivers the State of the Union while Speaker McCarthy telepathically rearranges his sock drawer.

The speech will have the usual Biden-isms and probably a couple of slip-ups that will not help him beat the "senile" allegations. But what the administration will most be hoping to do is reduce the American people's perception that the president hasn't done anything. A new poll says 62% of Americans think Biden has accomplished not much or little to none while in office. If you're planning to run for re-election on your performance, you've got to sell that performance. Clearly, that isn't happening right now – partially because the media is more interested in balloons, and partially because Democrats are bad at selling their accomplishments.  

Good news from last week

After a month, I got a dishwasher that works. I am pleased. 

What I read/recommend from last week

  • The Inflation Reduction Act's electric car tax break initiative is already showing good returns

  • The Centre for European Policy Analysis put together this rundown of insidious connections between Russia and some Western elites. One revelation to keep an eye on: the far-right coup thwarted by Germany earlier in the year may have been supported by Russian intelligence. 

  • Wealthy, married American men are cutting back on their work hours for the first time in 50 years. The effects of such a reversal could have long-lasting effects. 

  • Rolling Stone needs a copy editor in a bad way, but I enjoyed this interview about taking down neo-Nazis nonetheless. Shout out to Smedley Butler.

I hope you all have a good week. Joy cometh in the morning,

All the best,

Joe 

Joe Noser