2026-08-15 ATS briefing¶

The Next Global Economic Crisis Could Be Made in China¶

The alarm being sounded here is not that China produces too much, but that the world might stop letting it. Froman's argument rests on a simple arithmetic: a machine built to export at two or three times the rate of global growth eventually runs out of customers. At $1.2 trillion, China's surplus is the largest in recorded history, and the political tolerance for absorbing it—in the US, Europe, and the developing world—is finite. The "dual circulation" strategy of 2020 was meant to square this circle, but it has not reduced the export imperative; it has merely acknowledged the contradiction while continuing to feed it.

The deeper material is in the domestic mechanics. Nearly 30 percent of Chinese industrial firms operate at a loss, a figure that rises to 34 percent in the state-prioritised sectors. This is not a market failure but a system working as designed: local governments prop up unprofitable factories to preserve employment and tax revenue, and state banks roll over debt for insolvent borrowers. The Chinese term neijuan—involution—captures the dynamic precisely. Firms invest more to produce more to export more at negative margins, subsidised by a financial system that does not demand returns. The result is an industrial machine that cannot stop, cannot slow down, and cannot keep going.

Where Froman's analysis is weakest is in its prescription. He calls for a "preemptive and gradual rebalancing" toward domestic consumption, as if this were a policy choice available to Beijing rather than a structural transformation of its entire social contract. The CCP's anti-involution campaign and the 15th Five-Year Plan's consumption push are gestures toward this, but the leadership's unwillingness to reorient fundamentally is not stubbornness—it is the logic of a system whose legitimacy rests on industrial output and employment. The US, Froman notes, would be the only actor with the capacity to stabilise the global economy when the reckoning comes. That is a revealing admission: the crisis he fears is not Chinese collapse but the exposure of how dependent the entire global order has become on a machine that was never built to stop.

The Long Shadow of the Iran Shock¶

Source: Foreign Affairs

The five months since Tehran closed the Strait of Hormuz have produced a strange comfort: Brent crude averaged just over $100 a barrel, spiked to $126, then fell back into the $80s even after the ceasefire collapsed. By the standards of past energy shocks, this is almost nothing. The IEA called it the largest supply disruption in history, and the world shrugged. The authors' warning is that this shrug is a misreading of the moment, not a sign of structural immunity.

What made the first phase survivable was a stack of one-off conditions. Markets were oversupplied before the war. Inventories were flush. Saudi Arabia and the UAE had built pipelines bypassing the strait. China absorbed the shock by cutting imports, drawing on its vast state capacity to throttle its own consumption. And Trump's repeated claims of an imminent resolution kept the risk premium low by making traders fear being caught long on a sudden flood of supply. None of these cushions are renewable. Inventories are depleted, refining capacity is the new bottleneck — diesel and jet fuel are priced far above what headline crude suggests — and Europe enters winter with depleted gas storage, more exposed to coercion than it was before the crisis began.

The deeper point is that the pain was never evenly distributed. The modest global benchmark concealed rationing, shortages and fiscal strain across Asia and Europe, while the United States and China demonstrated "newfound levels of insulation." This is the new geography of energy power: the shock is not absorbed by the system but displaced onto its weaker nodes. The authors frame this as a policy problem — rebuilding resilience before the next phase — but the material reality is that resilience is a positional good. The cushions that protected some economies were built from the vulnerability of others. A second phase of the crisis, with threadbare inventories and damaged infrastructure, would not be a repeat; it would be the same shock hitting a system that has already spent its defences.

Iran says no decision yet on a return to talks with the US¶

Source: Al Jazeera

The ceasefire never really took hold, and the diplomacy around it has collapsed into a dispute over who gets to define the terms of its own failure. Araghchi’s Telegram post is careful: mediators are exchanging messages, but that is not negotiation. The distinction matters because it lets Tehran acknowledge the channel exists without conceding that the MoU signed in Pakistan in June retains any binding force. He blames the US for the return to violence, which is partly a negotiating posture and partly an accurate description of Washington’s escalation since.

The interesting move is the Strait of Hormuz. Iran is designing a “temporary route” for shipping that will become the final route, contingent on conditions the US must meet. This is not just a technical exercise in maritime planning. It is an attempt to convert military control of the waterway into a permanent bargaining chip — a way of saying that the old status quo is gone and any return to normal commerce runs through Tehran’s administrative machinery. Trump’s declaration that he will make Hormuz US territory is the mirror image: an assertion that the strait’s legal status is whatever Washington says it is. Both sides are trying to pre-emptively define the settlement before negotiations begin.

The economic turn is where the real pressure sits. Bessent’s “Economic Fury” sanctions and the dismantling of currency exchange networks are aimed at Iran’s shadow banking system, which has kept the economy afloat despite decades of sanctions. The strategy has a track record of producing protests but not regime change. What is different now is the combination of blockade and financial isolation, which could squeeze harder than either has alone. Ginsberg’s “game of economic chicken” framing is apt: both sides are betting the other blinks first, and neither has a credible exit strategy that does not involve losing face. For the left, the relevant question is not whether Iran’s government survives, but what happens to the region’s working class if the standoff drags on — the blockade hits ordinary people first, and the protests that follow will not necessarily point in a progressive direction.

Xeneta analyst insight – Middle East war impact spreads to long term market¶

Source: Hellenic Shipping News

The war premium has migrated from the spot market into the long-term contract market, and Xeneta's Peter Sand is candid about what that means: carriers now hold the whip hand. Spot rates from the Far East to the US West Coast have climbed 271% since late February, and the gap between spot and contract rates on that lane has widened to over $4,000 per FEU. That spread is the carriers' negotiating leverage made visible — every shipper staring at the spot market knows the alternative to signing is worse.

Sand's advice to shippers is to avoid one-year deals and instead secure space quarter by quarter, with adjustment mechanisms built in. That is sound commercial counsel, but it also reveals the underlying dynamic: the risk of this war has been privatised onto the shippers, while the carriers collect the premium with no corresponding exposure. The carriers are not hedging against the conflict; they are pricing it, and the longer it persists, the more the elevated rates harden into a new baseline. A 41% increase in long-term rates to North Europe is not a temporary spike — it is the market absorbing the war as a structural cost of doing business.

What is absent from the analysis is any sense of where the ceiling sits. Sand notes the disruption "will not go away any time soon," but the carriers' power rests on the assumption that demand holds. If the global economy softens, the spot market turns first, and the long-term contracts signed at these levels become millstones. The shippers locking in now are betting that the war outlasts the business cycle. That is a wager with no hedge.

What is the Texas ratio?¶

Source: FRED Blog

The Texas ratio is a piece of banking folklore with a precise arithmetic core: nonperforming loans divided by tangible equity plus loan-loss reserves. It was born in the 1980s Texas bust, when oil-price shocks and speculative real estate turned the state's banks into insolvency candidates, and it survives today as a quick diagnostic for whether a bank's bad assets can be absorbed by its actual capital cushion. A ratio above 100% means the bank's problem loans exceed its capacity to eat them without collapsing.

The FRED graph aggregates this across all FDIC-insured commercial banks, and the headline number is striking: 5.82% as of early 2026, near the all-time low of 4.59% recorded in mid-2022. On its face, this suggests a banking system in rude health. But the metric's own history is a warning about what it cannot see. The Texas ratio was designed to catch the damage after it had already accumulated — nonaccrual loans and foreclosed real estate are lagging indicators, the debris of a crisis already underway. A low aggregate ratio in 2026 tells you little about the quality of loans made in 2024 or 2025, particularly commercial real estate exposure that has not yet been marked down.

The deeper problem is aggregation itself. A national average of 5.82% can hide a distribution where a handful of regional banks — concentrated in office-heavy downtowns or suburban malls — carry ratios well above 100% while the megabanks, with their diversified portfolios and access to cheap funding, drag the mean down. The ratio is a useful thermometer, but it measures the fever, not the infection. For the hosts, the relevant question is what happens when the lagging indicators finally catch up with the leading ones: the Federal Reserve's rate hikes have already repriced commercial real estate, and the banks holding those loans are sitting on the same kind of unrecognised losses that the Texas ratio was invented to expose. The metric's current calm may be the quiet before the mark-to-market.

How Corporations Can Mitigate an AI Jobocalypse¶

Source: Project Syndicate

The piece is honest about its own limits: Rajan admits no one knows the speed, scale, or sectoral spread of AI displacement, then proceeds to build a policy case on that uncertainty. The Census Bureau figures he cites — 20% of small firms using AI versus 37% of large ones — do the work of showing that adoption is still shallow, but he never asks why. The answer is not technological lag but the structure of investment. Firms adopt AI when it promises to raise the rate of return on capital, and for most small employers the upfront cost of reconfiguring operations around the technology does not yet justify itself. The 37% figure for large firms is less a sign of enthusiasm than of concentrated capacity to absorb risk.

Rajan's proposal is that governments should incentivise corporations to slow displacement in the name of "social solidarity." This is where the analysis quietly inverts itself. He treats the corporation as a neutral actor that can be persuaded to weigh long-term interests against short-term cost-cutting. But the corporation is not a deliberative body; it is a vehicle for the valorisation of capital, and its "long-term interests" are whatever preserves that function. A firm that retains workers out of solidarity is not acting as a corporation but against its own logic, and it will be disciplined by competitors who do not share the sentiment. The policy incentives Rajan gestures toward would have to be substantial enough to override the basic compulsion of the market, at which point they are no longer incentives but subsidies for not doing what capital otherwise must do.

The deeper problem is that Rajan frames the question as one of corporate responsibility when it is actually one of social power. If AI displacement is real, the question is not how to persuade employers to be gentle but how workers can force them to be. That requires organisation, not appeals to enlightened self-interest. The fact that a former central banker is now asking corporations to volunteer for restraint suggests the state has already conceded that it will not compel them.

The Real Competitiveness Test¶

Source: Project Syndicate

The McKinsey authors reduce competitiveness to a single observable act: where capital chooses to build. On its face this is refreshingly concrete next to the World Bank's indicator sprawl. But the measure smuggles in an assumption worth prying open. Investment flows record where capital expects the highest return, not where production is most socially useful or even most efficient in engineering terms. A country can be "competitive" in this sense while its workforce stagnates and its infrastructure decays, so long as the rate of profit holds up.

The deeper problem is temporal. Investment decisions are made against expectations, and expectations in the current conjuncture are shaped by a decade of state intervention that has distorted price signals beyond recognition. The Inflation Reduction Act and the Chips Act did not make the US "competitive" in any market sense; they made it competitive in the sense that a subsidy war can make any destination attractive. The authors acknowledge this obliquely when they urge Europe to make building "cheaper and easier," but they treat the state as a neutral cost-reducer rather than the active architect of the very investment map they propose to read.

China's position in their data is instructive. Three decades of state-directed industrial policy have made it the world's factory floor, and now the leading destination for productive capital. If investment is the test, China passes it because its state treats competitiveness as a strategic project, not a market outcome. The authors' prescription—cut red tape, speed up permits—assumes the race is run on a level track. It is not. The US and Europe are not merely slower runners; they are competing against a state that has collapsed the distinction between policymaker and investor. That is not a bug in their framework. It is the reason their framework will keep producing the wrong answers.

What Should Be Done About Asia's Undervalued Currencies?¶

Source: Project Syndicate

The argument that the renminbi, yen, and won are undervalued rests on a simple accounting identity: surpluses in East Asia are the mirror image of the US deficit. But Frankel's point is that currency intervention treats the symptom while the disease is structural. The surpluses are not primarily a price phenomenon — they reflect savings gluts, demographic profiles, and industrial policy that deliberately suppresses domestic consumption in favour of export-led growth. Depreciating the yen further would not make Japanese households spend more; it would simply make Japanese exports cheaper for Americans already drowning in debt.

The interesting tension here is between the US demand for revaluation and the internal logic of each Asian economy. For China, a stronger renminbi would accelerate the transition away from export dependence — a transition Beijing claims to want but resists in practice because it would expose the fragility of domestic demand and the property sector. For Japan and Korea, the calculus is different: their surpluses are less about currency manipulation than about demographics and corporate savings behaviour. A coordinated intervention would therefore be a political gesture dressed as an economic policy — it would satisfy American political pressure without altering the underlying flows.

What Frankel leaves implicit is that the dollar's role as the world's reserve currency is what makes this asymmetry sustainable. The US can run perpetual deficits because the rest of the world needs dollars for trade and reserves. The Asian surpluses are not a distortion to be corrected but a structural feature of the system — one that the US tolerates because it funds its own consumption at artificially low interest rates. The real question is not whether the yen is undervalued but whether this arrangement can survive the current conjuncture of US fiscal expansion and tightening global liquidity. At some point, the recycling of Asian surpluses into US Treasuries becomes a political liability for both sides.