The most efficient policy for Russia is to retain the highest tension with Ukraine with the help of West 2. Russia will invade when the West stops talking about it.

The current hysterical company in media and official sources like the state department and department of defense about the imminent Russian invasion gives a good handicap to Russia. The no-reaction policy makes the hysteria only worse because nothing happens in reality and the stakes have to be increased. Otherwise, the interest of the broader public will drop to the level where  CNN is hovering. The public trained by the mainstream western media cannot focus on something more than a few seconds. Only an increasing heap of dead bodies can retain the interest.  If nothing happens, everyone understands that this is poor comedy or fake news. 

Russia is silent and reports no plans of invasion. The troops are in regular dislocations.  Only when the western hysteria calms down ( just a few weeks more the attention can be retained without the imminent backfire from the public) to the level of indifference and the Ukrainian resources are exhausted the invasion time will come. As an alternative, the unprovoked attack of the Ukrainian troops (well documented by visual and other physical tools as it was in Georgia 2008) will break the peace under the Minsk Protocol. In the conditions of the Russia-USA talk on global security, this will be the cart blanch for Russia to use all military and technical means for self-defense. The West position will be undermined. 

I would suggest that the second variant is better for Russia. Putin said a very simple phrase - "the decisions centers will be attacked". This is almost all European countries and many more helping Ukraine will weapon and people. It will be a legitimate action.    

The most efficient policy for Russia is to retain the highest tension with Ukraine with the help of West

The media in western countries seeds panic in Ukraine in favor of Russia. The long-term Russian policy is to make Ukraine weaker in all dimensions: economic, military, human capital, emotional tension, human disparity, conflicts among political parties, revealing western interest above domestic, etc. Almost all Russian actions are successful. The poorest country in Europe lost 30% of its economically active population. Tens of thousands of tons of artillery projectiles lost in fire are replaced by tens of tones supplied by the west. Any rational action is fiercely counteracted by the Nazi(onalist) minority with the tattooed SS-symbols. The Minsk Protocol fires the whole political system. As Germans say: Zug-Zwang. 

The longer Russia retains the pressure the worse is the future loss of Ukraine and the west. That is the reason Bloomberg publishes "Russia invaded Ukraine". Any delay of "the Russian invasion" badly hits Ukraine and the west (especially USA) in the aforementioned dimensions. The Turkey-Ukraine free trade agreement seems to be the last resort - Turkey now is the hyena of Europe. 

P.S. French Macron is going to visit Russia and Ukraine next week. It seems to be a manifestation of understanding of the trouble to EU and France. They will discuss the Minsk Protocol :

UN Version

Annex I to the letter dated 24 February 2015 from the Permanent Representative of Ukraine to the United Nations addressed to the President of the Security Council [Original: Russian] 

Protocol on the outcome of consultations of the Trilateral Contact Group on joint steps aimed at the implementation of the Peace Plan of the President of Ukraine, P. Poroshenko, and the initiatives of the President of the Russian Federation, V. Putin Upon consideration and discussion of the proposals put forward by the participants of the consultations in Minsk on 1 September 2014, the Trilateral Contact Group, consisting of representatives of Ukraine, the Russian Federation and the Organization for Security and Cooperation in Europe (OSCE), reached an understanding with respect to the need to implement the following steps: 

1. Ensure the immediate bilateral cessation of the use of weapons. 

2. Ensure monitoring and verification by OSCE of the regime of non-use of weapons. 

3. Implement decentralization of power, including by enacting the Law of Ukraine on the interim status of local self-government in certain areas of the Donetsk and Luhansk regions (Law on Special Status). 

4. Ensure permanent monitoring on the Ukrainian-Russian State border and verification by OSCE, along with the establishment of a security area in the border regions of Ukraine and the Russian Federation. 

5. Immediately release all hostages and unlawfully detained persons. 

6. Enact a law prohibiting the prosecution and punishment of persons in connection with the events that took place in certain areas of the Donetsk and Luhansk regions of Ukraine. 

7. Continue an inclusive national dialogue. 

8. Adopt measures aimed at improving the humanitarian situation in Donbass. 

9. Ensure the holding of early local elections in accordance with the Law of Ukraine on the interim status of local self-government in certain areas of the Donetsk and Luhansk regions (Law on Special Status). 

10. Remove unlawful military formations and military hardware, as well as militants and mercenaries, from the territory of Ukraine. 

11. Adopt a programme for the economic revival of Donbass and the resumption of vital activity in the region. 

12. Provide personal security guarantees for the participants of the consultations. 

Participants of the Trilateral Contact Group: (Signed) Heidi Tagliavini, Ambassador (Signed) L. D. Kuchma, Second President of Ukraine (Signed) M. Y. Zurabov, Ambassador of the Russian Federation to Ukraine (Signed) A. W. Zakharchenko (Signed) I. W. Plotnitsk

Five graphs on the male/female income gap

Figure 1. Mean income: male vs. female. Chained 2020 dollars

 

Figure 2. Mean income: male vs. female. Current dollars

 

Figure 3. The ratio of male/female mean income

 

Figure 4. Male and female with income between 1947 and 2020. Notice the growth in the female’s share with income before 1979. Partly, it was because of the change in income definition. It explains the growth in the male/female ratio between 1947 and 1960.

 

Figure 5. The difference between male and female real mean income. After 1980, the gap varies between $21000 and $27000.

  

The evolution of higher incomes in the USA: 2019 and 2020 comparison

 Personal income (PI) is the key economic parameter. The aggregated personal income has to be equal to the GDP if to count all sources of income as personal. At the end of the day, all money belongs to physical persons in one of the numerous ways. In reality, there are so many official and unofficial ways to count personal income that it is hard to find a person with full knowledge of all details of all the measurements. Here, we compare two measures of personal income as reported by the US Census Bureau (CB) and by the Bureau of Economic Analysis (BEA).  Figure 1 presents the evolution of the (nominal) personal income reported by the CB and BEA since 1967. The deviation between these two curves in relative terms is shown in Figure 2 (the sources of personal income differ between the BEA and CB, e.g. the BEA includes the imputed rent). One can see that the CB/BEA ratio has been slowly growing from 0.8 in 1970 to 0.88 in 2019. The years after the Great Recession (2011-2019) are characterized by slightly higher ratios than at the beginning of the 21^st century. The years of the Great Recession are well seen in Figure 1 but they produce different effects on the CB and BEA curves. For the BEA curve, only the year 2009 is characterized by a fall and then the curve is back to growth. The CB curve has a shelf between 2007 and 2010: people reported no money income growth during these years, but the BEA includes some other income sources, e.g. special kinds of social security money transfer as shown in Figure 3.

 The Current Population Survey of the CB gives an expected result for 2020 – almost the same PI as in 2019 (Figure 1). This means that the personal income distribution, PID, should not be affected much. One of the most sensitive parameters of the personal income distribution is the number or share of people with high incomes. Figure 4 presents the age-dependent curves for the number of people with a nominal personal income above $100,000. In 2020, no overall growth is observed and the change in each group is likely within the uncertainty limits of the measurements in the CPS ASEC (March) Supplement. Figure 5 illustrates the fact that the growth in population with income >$100,000 in 2020 was small in all age groups. Only young people likely demonstrated reliable income growth. Elder people are rather characterized by income decline relative to 2019. 

Because of the population growth, inflation, and real economic growth, the number of people increases with time in all age groups between 2010 and 2019. Relative growth is a more reliable characteristic in this case. Figure 6 presents the share of people with income >$100,000 in the same age groups. The basis is the number of people with income (a total number less the number without income or loss) and it varies between the age groups as Figure 6 shows for 2020. Finally, the shapes of the relative shares of people with income >$100,000 are shown in Figure 7. All curves are close to each other, as expected for the power (Pareto) law income distribution for the higher incomes. 

The question is why the income from the government supposedly was not counted in the money income of the Census Bureau in 2020. The government transfer under “Social Security” and “Others” was larger than 1 trillion, and people obtained part of this money in cash. The income distribution was likely not affected. 

Figure 1. Personal income measured by the CB and BEA since 1967.

 

Figure 2. The ratio of the personal income estimates reported by the CB and BEA since 1967

 

Figure 3. Sources of personal income used by the BEA but likely not used by the Census Bureau.

Figure 4. The evolution of the number of people with income >$100,000 as a function of age between 2010 and 2020.

Figure 5. Share of people with income >$100,000 as a function of time in various age groups

 

Figure 6. The share of the number of people with income in various age groups.

 

Figure 7. The evolution of the share of people with income >$100,000 as a function of age between 2010 and 2020.  The curves in Figure 4 are normalized to their respective peak values.

 

Some long-term observations before the Federal Reserve will change the overnight rate

Five years ago, we wrote in this blog about the strict proportionality between the CPI inflation and the actual interest rate defined by the Board of Governors of the Federal Reserve System, R. Briefly, the cumulative interest rate is just the cumulative CPI times 1.4. There are periods when the interest rate deviates from the long-term inflation trend, which has been almost linear since 1972. Here, we extend the observational dataset and discuss the most probable reason why the FRS actually not control inflation by presenting the actual economic force behind price inflation, as we presented in a series of papers [e.g., 1, 2, 3, and 4].  Overall, inflation is a linear lagged function of the change in the labor force. The latter is driven by a secular change in the participation rate in the labor force (LFPR) together with a general increase in working-age population. In other words, increasing the labor force pushes inflation up, and decreasing the labor force leads to deflation.

Introducing new data obtained from 2016, we depict in Figure 1 the effective rate R divided by a factor of 1.37 (see our previous post for details) and the consumer price inflation. One can see that R lags behind the CPI since 1980, i.e. inflation grows at its own rate and R has to follow up. The idea of interest rate is that a higher R should suppress price inflation when it is high due to the effect of expensive money. During deflationary periods with a slow economy, low (in some countries negative) R has to channel cheap money into the economic growth. The reaction of inflation is also expected not shortly but with some time lag.

The cumulative influence of the interest rate should produce a desired effect in the long run, and inflation should go in the direction towards acceptable values. Figure 2 displays the cumulative effect, i.e. the cumulative values of the monthly estimates of R and CPI multiplied by 1.37. This is an intriguing plot. In the long run, the R curve fluctuates around the CPI one and returns to it. It is hard to believe that the sign of deviation of R from the 1.37CPI curve affects the behavior of the CPI, which is practically linear. Therefore, the influence of monetary policy is under doubt.

The FRS has tried all means to return the CPI to R without any success and has to return R to the CPI!

We have already described the secular changes in LFPR in 2013, 2014, 2015, and 2021. Figure 3 illustrates the genuine periodicity of the LFPR change and Figure 4 describes the evolution of LFPR as measured by the Bureau of Labor Statistics as a function of time: the LFPR curve is accurately approximated by a simple function: LFPR(t) = 62.7+4.3SIN(2π[t-1978]/T). The period T=74 years and the double amplitude is 8.6, i.e. the largest LFPR change is 8.6%. Currently, the LFPR is strictly in the center of the range and in the middle of the fall from 1996 to 2034.

In 2016, R and 1.37CPI 2 coincided.  We predicted that R has to be retained below CPI at least before 2020.   This prediction was correct. The surge in CPI in 2021 is short term, however, and R will not be above CPI any time soon except during the deflation period in 2022-2023.

 

Figure 1. The federal funds rate, R, divided by 1.37, and the rate of consumer price inflation, CPI, between 1955 and 2021.

Figure 2. Cumulative values of the curves in Figure 1.

Figure 3. LFPR evolution: direct and time inverted (mirrored) LFPR with the peak in 2000.

Figure 4 .The rate of participation in the labor force (LFPR). LFPR is accurately approximated by a simple function: LFPR(t) = 62.7+4.3SIN([t-1978]/T). The period T=74 years. Red (start) and green (end) vertical lines highlight two periods of accelerated growth. The periods of accelerated growth last 1/4T =18 years. The next period will start in 2034.

Real GDP per capita growth: any blink by Blinken will be considered as fear and will destroy the belief in the US possibility to protect

The evolution of the annual increment of the real GDP per capita in the USA can be represented as stochastic fluctuation around the mean value of $648 between 1960 and 2020. This observation is presented in Figure 1, where the regression line of the annual increment (in chained (2012) dollars) is shown in red. The mean value is presented by a dashed line and highlights the negative slope of the regression line. This observation confirms our model of real GDP growth as introduced in 2004. The essence of this model can be formulated as follows:

 

There is no exponential economic growth in a capitalist economy and the return to capital is decreasing.

Therefore, a strong capitalist country has to rob all weaker countries.

In other words, the US (and other capitalist countries) future is grim because their prosperity depends on their capability to control and rob other countries. China and Russia make this route not easy to follow. It will be accompanied by extreme risks. The current US-Russia collision is just a start. China is a bigger challenge and any loss against Russia makes a tremendous crack in the NATO (West) defense. 

Any blink by Blinken will be considered as fear and will destroy the belief in the US possibility to protect.

Figure 1. Annual increment in real GDP per capita

 

The idea of constant annual increment of the real GDP per capita in developed counties was first introduced fifteen years ago in this working paper. I wrote “The trend has the simplest form – no change in absolute growth (annual increment) values and is expressed by the following relationship: 

dG/dt=A (1) 

where G is the absolute value of real GDP per capita, A is a constant. The solution of this equation is as follows: 

G(t)=At+B (2) 

where B=G(t0), t0 is the starting time of the studied period. Hence, the evolution of real GDP per capita is represented by a straight line if the second factor of growth has no cumulative effect. As discussed below, only some developed countries are characterized by a significant influence of the second factor. 

Then, the relative growth rate can be expressed by the following relationship:

dG/Gdt=A/G(t) (3) 

Relationship (3) indicates that the relative growth rate of per capita GDP is inversely proportional to the attained level of real GDP per capita, i.e. the observed growth rate should asymptotically decay to zero with increasing GDP per capita. “

Using (3) one can replace time, t, with G(t) and obtain the link between the G(t) and dG(t). For example, Figure 22 in this paper is copied here and presents the case of the US. The open circles are the estimates of real GDP per capita between 1950 and 2002. The regression line for the original data has a positive coefficient, i.e. the G(t) growth is slightly exponential.  

                                                      Figure 22 of the 2006 paper

 In 2012, we revisited the model and re-estimated the annual increment in the USA. The Figure below is copied from the 2012 paper and includes data from 1950 to 2007, i.e. just before the Great Recession. The slope of the regression line is still positive. The Great Depression put the regression line to that observed in Figure 1 as we suggested in 2006.

                                                Figure 17 from the 2012 paper

 

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How many steps does Russia need to ruin the US stock market? From guarantees of safety to guarantees of instability

In this post, I asked how many escalation steps Russia needs to ruin the US stock market. Just a month after this question it is clear that the current situation focused on the bifurcation point - transition from the guarantees of safety for Russia to the guarantees of military instability of the whole world. The US stock market is of no interest anymore. The question is about the survival of the world. However, the US stock market collapse will be the first step to economic degradation. Biden has insane political and military advisers by his economic advisers are even worse. Recovery of industrial production within the US leads to exponential inflation growth - the US production factors are extremely expensive.