Thoughts From The Divide: Never Rains But It Pours
It’s been a challenging week for President Trump. The problems started when the Justice Department released a memo as part of their “commitment to transparency” that explained there was no evidence of an “Epstein client list” or that his death was suspicious. Trump offered a spirited defence of AG Pam Bondi, but this did little to placate the MAGA base, who appeared understandably sceptical. Reports that China believes it has the whip hand in trade negotiations because of its rare earth leverage can’t have improved the President’s mood. Worse still, there does seem to be substance to those reports. One poker tell was the recently announced deal between MP Materials and Apple, which will invest $500mn in rare earth magnets and a recycling facility (of course). That news followed last week’s announcement of a $400mn investment in MP by the Pentagon, no less! Trump then managed to go 0 for 3 when he ostensibly floated a trial balloon on firing Powell. The market reaction prompted a swift walk-back. The point was probably not to effect Powell’s ouster but just to undermine him further. Sadly, having bonds and the dollar breakdown on the rumour probably burnished Powell’s reputation more than it harmed it. So, a gaff-prone week for POTUS – it never rains but it pours! That said, Trump still had a better week than one unfortunate CEO and his head of HR, who suffered the indignity of being outed as Coldplay fans by Chris Martin himself. Our hearts go out to him and his wife, whose social media presence has predictably blown up. Let this serve as a warning to all Coldplay fans.
It was against this background that Kevin Warsh’s job interview on CNBC caught our attention. It was not so much what Warsh said, but rather how close Warsh’s comments mirrored some of Paul Winfree’s proposals within the Heritage Foundation’s Project 2025 policy document. Warsh and Winfree agree that the Fed should refocus on its core monetary policy function and have its scope for discretionary intervention curtailed. The balance sheet should be run down. It’s always nice when everyone sings from the same hymn book. Of course, if Warsh is interviewing, it makes no sense for other candidates to be silent. Waller reiterated his obvious qualifications for the job.
On a more sombre note, we occasionally highlight the fiscal implications of climate change. Regardless of whether we transition to net zero, increased climate variability imposes substantial economic costs due to the need to repair damage and harden existing infrastructure. The recent tragic events around the Guadalope River in Texas remind us that climate change can dramatically impact precipitation rates, making previously safe areas unsafe. We had another clear demonstration of this in the recent heavy rains in Manhattan and New Jersey. Extrapolating these costs has implications for public indebtedness, productive capacity and inflation, while all the time boosting apparent GDP figures, meaning that GDP will continue to deteriorate as a proxy for quality of life.
For those tracking power, policy & positioning, we capture more beneath the headlines.
Your reference to climate change does not address the subject of what may be prompting costly climate events. Let me point you in the proper direction. Meet the historic, record-smashing Hunga Tonga volcanic eruption of 2022, which I bet you never heard of. A well-endowed underwater Pacific Ocean volcano named Hunga Tonga-Hunga Ha’apai, massively erupted, bigger than any other modern volcanic eruption, even bigger than Mount Pinatubo and possibly Krakatoa.
The erupting lava instantly vaporized fantastic, unimaginable amounts of sea water, which billowed into the atmosphere, changing the water composition of Earth’s atmosphere and heating it up for years. In just a few days, the superheated water from the Hunga Tonga eruption blanketed the entire globe, pole to pole, East to West.
Here is the link to an August, 2022 NASA article about the eruption:
https://www.nasa.gov/feature/jpl/tonga-eruption-blasted-unprecedented-amount-of-water-into-stratosphere
“Unprecedented” is accurate. But that word doesn’t do justice to the scale of this environmental catastrophe. NASA described Hunga Tonga as one of the most dramatic events in modern history. It generated a trans-oceanic tsunami that reached all ocean basins, every continent’s shorelines, and over 40 countries thousands of miles away. It caused the most intense atmospheric explosion ever recorded by modern instruments. One of the most important side effects was that Hunga’s eruption broke all records for injection of water vapor —the most powerful greenhouse gas— into the atmosphere. NASA:
When the Hunga Tonga-Hunga Ha’apai volcano erupted on Jan. 15, 2022, it sent a tsunami racing around the world and set off a sonic boom that circled the globe twice. The underwater eruption in the South Pacific Ocean also blasted an enormous plume of water vapor into Earth’s stratosphere – enough to fill more than 58,000 Olympic-size swimming pools. The sheer amount of water vapor could be enough to temporarily affect Earth’s global average temperature.
The [eruption] not only injected ash into the stratosphere but also large amounts of water vapor, breaking all records for direct injection of water vapor, by a volcano or otherwise, in the satellite era. …The excess water vapor injected by the Tonga volcano … could remain in the stratosphere for several years. This extra water vapor could influence atmospheric chemistry, boosting certain chemical reactions that could temporarily worsen depletion of the ozone layer. It could also influence surface temperatures … since water vapor traps heat. “We’ve never seen anything like it,” said Luis Millán, an atmospheric scientist at NASA’s Jet Propulsion Laboratory in Southern California.