US & Americas Political Macro Commentary – January 5, 2022

Nicholas Glinsman | January 5th, 2022

COMMENTARIES

  • The changing shape of the inflation problem, wherein central banks maintain their view of transitory
  • Inflation
  • Supply chains remain knotted up
  • US Trade Outlook
  • Why won’t Joe Biden stand up to Iran?

The changing shape of the inflation problem, wherein central banks maintain their view of transitory

  • The Federal Reserve has not tried to predict the timing of the turning point but policymakers forecast inflation for the whole year will be roughly 2.6 per cent, compared with around 7 per cent for 2021.
  • Janet Yellen, the US Treasury secretary, has been less precise: she simply said it would start to fall some time in the first quarter.
  • The Bank of England forecasts inflation will peak at 5 per cent in April.
  • Isabel Schnabel of the European Central Bank said in November that inflation had, likely, already reached its summit.

If these central bankers are right, then for much of 2022 inflation — the economic bugbear of last year — will be fading away.

That only presents a different challenge. Last year, central bankers could justify inaction on the basis that some inflationary pressures would prove temporary and the global economy was still recovering from its pandemic-induced recession. To an extent, this year’s figures are likely to prove them correct to a certain extent — even if their forecasts of the peak are out by a few months, and/or possibly percentage points.

In part, the central bankers will have a statistical quirk to thank. Higher headline inflation last year reflected comparisons with the worst of the pandemic in 2020. The annual figures for 2022 will be compared, more flatteringly, to the price spikes in 2021 instead – the base effect.

There are other one-off effects. That includes, in the eurozone, the reversal of a pandemic-induced cut in German value added tax. Even if prices for used cars and gasoline stay high, they are unlikely to repeat their extraordinary rise — in the US the two categories increased by 31.4 per cent and 57.5 per cent respectively in the 12 months to December 2021. There are tentative signs that backlogs in ports are easing, albeit tenuous right now given renewed lockdowns in China, while manufacturing companies report that delivery times for key components are improving.

Potentially, shortages of durable goods could even give way to gluts in 2022. The Bank for International Settlements has warned of “bullwhip effects” as a temporary scarcity of components leads to companies over-ordering and building inventories in anticipation of future problems. At first this added demand — from consumers switching spending from services to goods — increases the stress on supply chains. Eventually, however, it leads to a surplus as companies find they have more on hand than they could possibly use or their customers could want.

But just as it was wrong for central bankers in 2021 to overreact to the temporary factors boosting the headline rate of inflation, so too in 2022 they should not be misled by short-term trends holding it down. Central bankers will, instead of explaining their inaction in the face of rising inflation, need to stick to plans to tighten policy even as inflation falls. They need to do what they urged others to do, and concentrate on the details of figures rather than the headlines — sticking to the script they have set out on how to “taper” asset purchases and raise interest rates.

While so-called transitory drivers of inflation will increasingly fall away, the public’s expectations of price rises are likely to catch up with the inflation seen over the past 12 months. That could become a self-fulfilling prophecy, especially as:

  • The labour market tightens even more as the grip of the pandemic fades — barring the impact of any new variants.
  • Then, especially in Europe, what will be the ultimate inflationary impact of the energy price crisis, as manufacturers increase prices to take into account their substantially higher energy bills.
  • Furthermore, trade is clearly going to de-globalise to some extent, if not to a great extent, as manufacturers move to a ‘just-in-case’ system, from a ‘just-in-time’ system, wherein the former will not be the lowest cost option.
  • A shortage of fertilizers will impact food prices, as it is fair to assume less global output from the world’s farmers.
  • Finally, many countries are suffering a housing shortage, the consequence thereof will be higher rents (which has a large weighting in the US CPI).

These factors, rather than the vicissitudes of the global oil market or the idiosyncratic issues of semiconductor manufacturers, are the proper province of central bankers. Ironically the biggest inflationary challenge for monetary policymakers will begin even as the highest price pressures may disappear.

Now, perhaps the Fed is beginning to move beyond the above view, although I do wonder. It was reported yesterday that Federal Reserve officials have already begun to map out how and when they could shrink their $8.76 trillion portfolio of Treasury and mortgage securities. At their policy meeting last month, officials agreed to wind down their bond-purchase stimulus program more quickly amid growing concerns about high inflation, setting it on track to end in March. Officials began discussing at that meeting what should happen to the bondholdings after that point, and some are pushing to start shrinking them sooner and faster than they did after an earlier asset-purchase program. Markets would see that as a form of tightening monetary policy because it would signal the central bank’s desire to deliberately slow the economy.

Fed Chair Powell said last month that he and his colleagues hadn’t made any decisions on the matter and were likely to continue their discussion at their January 25-26 meeting. But he hinted that the central bank wasn’t preparing to follow the path taken between 2014 and 2019. Back then, the Fed kept the bondholdings steady for three years and then gradually began shrinking the balance sheet. When the Fed began this process in late 2017, the economy was weaker than it is now: Inflation was below the Fed’s 2% target, and the unemployment rate was higher. “The economy is so much stronger now, so much closer to full employment,” Powell said at the December 15 news conference. “This is just a different situation, and those differences should inform the decisions we make about the balance sheet at this time.” Powell pointedly stopped short of saying the Fed would follow the course it took last decade, a shift from comments he made in July 2021. Last summer, he told lawmakers that the 2017-19 episode provided a “reasonable starting place—to think that we might hold the balance sheet constant for some time and then perhaps allow it to shrink.”

Most market participants polled by the New York Fed in an October survey expected the Fed to start shrinking its holdings no sooner than 2024. Shrinking the portfolio faster or sooner could come as a surprise to some investors. Fed governor Christopher Waller, who last month described inflation as “alarmingly high,” said that shrinking the asset portfolio faster would offer one way to tighten policy without requiring even more aggressive interest-rate increases. St. Louis Fed President James Bullard also advocated in November for the Fed to shrink holdings after it stops purchasing securities “or shortly thereafter.”

One way for Fed officials to clarify their portfolio planning would be to issue a new statement of policy “normalization” principles, as they did when they were nearly finished with their asset-purchase stimulus programme in 2014.

The Fed’s balance sheet today consists of many more shorter-term Treasury securities than it did in the previous decade. If officials didn’t limit the potential runoff, the holdings would shrink relatively quickly —by about $3 trillion over two years. The Fed paused its balance-sheet runoff in 2019 and began to increase its holdings later in the year amid concerns the central bank had drained too many bank deposits from the financial system. Going forward, the problem may be lessened because the Fed last year devised a new facility that allows banks to more readily exchange government assets for Fed reserves.

Is this report the reason for the sell-off in the Treasury market these first three days of the year? Well, I started the year with a bearish bias for a variety of reasons, but let me leave the listing thereof to Nomura’s Charlie McElligott:

Oh, and let me re-introduce the Beveridge curve for the US, going back to the year 2000 – all signs point to a strong data report on Friday for nonfarm and unemployment.

Just to finish off here, let’s remember that the US Senate Banking Committee is planning to hold confirmation hearings next week for Jay Powell’s renomination as Fed Chair and Lael Brainard’s nomination as Vice Chair.  The White House and Committee Chair Sherrod Brown (D-OH) are working steadily towards confirmation of Powell, and likely Brainard, by the end of January.  There is more partisan dissent for both nominees, and thus likely to be fewer supporting votes, than was the case when they were previously confirmed by the Senate, but both are highly likely to be confirmed in the coming weeks on a bipartisan basis. 

The White House is moving towards nominations for the remaining open board seats, with announcements for at least the Vice Chair of Supervision, and possibly the other seats, as early as this week.  Sarah Bloom-Raskin is getting ongoing attention as the President’s likely nominee for Vice Chair of Supervision.  She has previously been confirmed by the Senate twice on a voice vote basis and is supported by leading progressives, (n particular, by Elizabeth Warren, however, Bloom-Raskin is an openly progressive voice on financial sector issues and her more recent aggressive comments on climate policy and bank supervision (as can be seen here  and here) are likely to result in meaningful Republican dissent.  Bloom-Raskin has emphasized that bank mergers and supervision should be mechanisms for shifting more credit to minorities and disenfranchised communities.  She will likely have significant Democratic support, and possibly even a few Republicans, unless small banks express concern about her nomination.  Her nomination could take some potential Republican pressure away from Brainard, who is a centrist, while Bloom-Raskin is a progressive who would make a more appealing target.   This is unlikely to to derail her nomination, but it could create some noise and uncertainty surrounding her confirmation.  As was the case with the withdrawn nomination of Saule Omarova, the White House seems undeterred by nominating progressives who might be controversial for financial regulatory posts.  In any case, controversy about Bloom-Raskin’s climate and broader regulatory views will be enough to slow the confirmation process and prevent a committee and full Senate vote for several weeks, if not months. 

The White House is also likely to soon announce the nomination for the remaining Board seats, with Lisa Cook long considered a likely pick, and Philip Jefferson’s name being publicly floated.  The White House is eager to announce these nominees in order to demonstrate its commitment to bringing greater diversity to the Board, but their Senate confirmation process may move more slowly as there is less urgency to have them in place for the purpose of advancing the Administration’s policy agenda than is the case for the Vice Chair of Supervision.

It will be telling to watch the regulatory policy issues raised by Senators Brown, Warren and other Democrats in the confirmation hearings for Powell and Brainard, as this will point to the Fed’s likely priorities going forward.  Democrats will raise concern about bank M&A, particularly in the wake of the Fed’s recent merger approvals, as well as potential bank capital and supervisory concerns about large regional banks.  The degree of mention of these issues will impact industry risk in these areas.  It is also likely that discussion of a Central Bank Digital Currency (CBDC) could arise, given Brainard’s historical interest in the matter and growing focus on the issue, especially as it relates to China’s efforts to introduce an digital CNY.   Any comment from Brainard, or particularly Powell, that goes beyond a commitment to studying/evaluating a CBDC would represent incremental momentum on the issue.

Inflation Watch

The Wall Street Journal has an interesting take in an op-ed entitled “Joe Biden’s Inflationary Trade Policy”. In case you missed it, here are some excerpts, as written two trade experts, William Walker and Stanton Anderson:

“…the villains aren’t the companies the Biden administration lawyers are targeting. The real culprit is closer to home—the White House’s own “worker-centric” trade policies, which are gouging American consumers and helping to stoke inflationary price increases. Prices for appliances and similar household goods are high because the Biden administration has continued the Trump administration’s tariff-led trade wars. High tariffs on imported steel and aluminum are being passed on to American consumers in the form of higher prices.

… Biden can claim his policies are “worker-centric” only because, in his eyes, some workers are more equal than others. Those of us who aren’t unionized steelworkers and metal producers —whose wages are propped up by price-gouging high tariffs—are consumers paying more for our appliances….

Now they are dressing it up as part of the planet-saving mission to reduce climate change. In November the Biden administration agreed to convert some tariffs on European steel and aluminum into quotas, but real price relief waits for a new agreement on imports of steel made using environmentally friendly production techniques. Small amounts of so-called green steel imports will get a break from the tariffs, while consumers will continue to pay artificially high prices.

t their approach is premised on violations of international trading rules that the U.S. once led the way in promoting—to prevent precisely the kind of political meddling that’s now become the norm. Nor will they acknowledge that they’re continuing failed Trump trade policies that conflict with both American domestic law and international trade rules and against which Mr. Biden campaigned in 2020.

… American trade policy was traditionally bipartisan, and aimed at reducing prices and increasing choices for consumers. Sadly, both parties have abandoned this approach. Instead, American consumers are being held hostage by tariff-led trade policies initiated by Mr. Trump and institutionalized under Mr. Biden.

Americans concerned by high prices can expect the government to point the finger of blame everywhere except at its own “worker centric” and, yes, greedy trade policies.”

It is well known that Joe Biden is a man of the unions. Unfortunately, this comes at a cost to the broader American consumer.

Supply chains remain knotted up

The New York Fed’s new gauge of global supply chain pressure tells the story clearly:

Some supply constraints are easing, but most are not. Analyst forecasts are wishy-washy. Some expect a brutal 2022 while others think the second half of the year could bring relief. Notably, even optimists aren’t expecting a full return-to-normal in 2022, but rather a normalisation in certain sectors. Don’t be lulled by headlines later this year saying supply conditions are getting better. The magnitude of supply problems matter as much as their trajectory.

And to remind you of problems in China, as mentioned yesterday, take a look at the following freight index:

The market is very focused on omicron developments in the US and Europe. But the big elephant in the room is China’s Zero Covid strategy and what this means for supply chains and inflation. Ningbo – the world’s biggest port – is once again enforcing a partial lockdown. We have been highlighting signs supply chain issues for a while, as you can see, some benchmark container indices are making new record highs again. China’s persistence with Zero Covid and harsh lockdowns will be critical for the supply side of goods in 2022.

US Trade Outlook

2021 can be characterized as a year of settling old disputes (Airbus-Boeing, steel and aluminum tariffs on EU exports) and rebuilding economic relationships in Europe and the Indo-Pacific, but not negotiating any new trade deals or establishing any bold new trade policies.  This coming year could either bring more of the same or a flurry of smaller deals done under the auspices of various frameworks announced by the Biden Administration.  What is unlikely is any major trade agreement negotiation or a serious move (no matter how logical/strategic) to rejoin the Trans-Pacific Partnership.  The Biden Administration let the authority to enter into new trade agreements, the Trade Promotion Authority, expire in July 2021 and has said virtually nothing about if or when it will seek a renewal of such authority.  

The two major trade policy pronouncements from the Biden Administration — a major speech on a China trade policy and the repeated proclamation of a worker-centric trade policy (see above article) —have offered few details and left everyone wanting more direct policy direction.  At the WTO, the Biden rhetoric is much more supportive of the WTO as an institution and the desirability of a multilateral, rules-based trading system than anything said by the Trump Administration, but those words have not been followed by any action to help right the sinking ship.  

Asia Trade Policy:

The most likely arena for U.S. trade policy moves is Asia, as the United States currently has no seat at the tables of the key trade forums in Asia—the Regional Comprehensive Partnership (RCEP) (Australia, China, Japan, Korea, New Zealand plus the ASEANs) or the CP-TPP (Canada, Mexico, Chile, Peru + Australia, Brunei, Japan, Malaysia, New Zealand, Singapore and Vietnam).  Among the possible agreements would be:

  • A free-trade agreement with Taiwan, which has recently eliminated the major stumbling block to an agreement (a ban on U.S. pork imports due to use of the animal-feed additive ractopamine) and is desperately seeking an agreement, partially out of a fear of being economically isolated by China;  
  • A digital trade agreement that builds on the U.S.-Japan Digital Agreement—prohibiting customs duties on digital products, ensuring cross-border data transfers, prohibiting data localization requirements, protecting against forced disclosure of proprietary computer source code and algorithms, guaranteeing consumer protections and data privacy, and establishing base-line rules on encryption technology;  
  • A series of agreements under the newly announced Indo-Pacific Economic Framework.   

China Trade Policy:

On October 4, 202, USTR Katherine Tai gave what was billed as a major China trade policy speech.  When it actually happened, there was little to suggest that the Biden Administration was prepared to move away from the Trump policies, including, surprisingly, managed trade policies underlying the Phase-One trade deal.  The only modest change was a pledge to work with allies on a common approach to China, to place a greater emphasis on addressing subsidies and SOEs, and a willingness to reopen a limited process for granting exclusions from the existing Section 301 tariffs put in place on $360 billion in Chinese imports by the Trump Administration.

While China will be the focus of much Congressional and business community attention, the Biden Administration has little room to maneuver and is unlikely to make major changes in trade policy with China.  It is clear that China has not met any of the targets set in the Phase-One deal requiring the purchase of an additional $200 billion in U.S. goods and services.  Through the end of November 2021, China was on track to meet only 60% of its import requirements, with energy purchases particularly below expectations and even agriculture coming in at only 64% of its December 2020 target.  

While USTR Tai has said that the United States intends to hold China to all of its commitments in the Phase-One deal, it is not clear how they intend to do so.  The purchase commitments ended as of December 31, 2021 while a number of the other commitments to provide market access live on.  At the same time, many in the business community and in Congress are frustrated that the tariffs remain in place, contributing to inflation and creating a drag on economic growth.  However, the Biden Administration has not provided a roadmap to remove those tariffs, and so is politically constrained from doing so without concessions from China, but without providing a view on what those concessions might be.

Europe:

So far, the Biden Administration has done more to repair trade relations with the EU than any other trading partner.  A five-year truce was reached in the spat over subsidies to Airbus and Boeing, a deal was reached to convert the steel and aluminum tariffs on EU exports into quotas, and a Trade and Technology Council (TTC) was established to coordinate policies and investments across a broad range of technologies.  

2022 is likely to bring significant effort to put together specific mini-deals under the auspices of the TTC, likely starting with semi-conductors, and work to get the EU and the U. on the same page with an approach to China.  However, as we have been writing in our European Daily Geopolitical notes, Germany, and in particular, Olaf Scholz, could prove to be very problematic.

Africa

The African Continental Free Trade Area Agreement (AfCFTA) came into force on January 1, 2021, resulting in the largest free trade area in the world measured by the number of countries participating (55), connecting 1.3 billion people with a combined GDP of $3.4 trillion.  The Biden Administration can be expected to, and absolutely should, explore a new strategy to enhance US trade and investment in Africa in light of the AfCFTA and China’s growing presence in Africa, with a need to deliver some enhancement to the African Growth and Opportunity Act (AGOA) prior to the US-Africa Leaders’ Summit scheduled for the last quarter of 2022.  

USMCA:

While tensions will remain over trade in lumber, auto rules of origin and the recently announced incentives to buy union-made US electric vehicles, 2022 is likely to see a further integration of the US, Mexican and Canadian markets, with disputes resolved through the USMCA’s dispute settlement mechanism and no major changes in trade policy.

World Trade Organization:

The WTO’s already long-delayed ministerial meeting scheduled for December 2021 was pushed to March of 2022, with much needing to be resolved if the WTO is to remain a relevant and viable institution.  Most WTO observers regard the success of the meeting as extremely important and a strong indicator of whether the world trading system is headed toward more multilateral cooperation, particularly on things like global health and the trade aspects of climate change, or more fragmentation.  A successful meeting will require completing at least the pending agreement disciplining fisheries subsidies and reaching a declaration on international cooperation to address the Covid pandemic, along with putting together a road-map for broader and deeper reform of the institution itself.  

The Biden Administration is perceived to have cynically thrown its support behind a waiver of the TRIPs Agreement’s intellectual property protections for vaccines without working to find a compromise that would allow the waiver to be enacted and of having thrown a monkey-wrench into the fisheries subsidy negotiations by adding a last-minute demand for labor requirements on fishing vessels.  If the WTO meeting is to succeed, it will require the Biden Administration to take a major leadership role and to put pressure on a number of key allies, particularly India, to compromise in order to reach agreements.  It is not yet clear if the Biden Administration is interested in doing so. 

Tariffs:

There will likely be only modest liberalization of the 25% steel and 10% aluminum tariffs, with an agreement with Japan to convert the tariffs into quotas the most likely.  The Section 301 tariffs on China (most at 25% and some at 7.5%) are also only likely to see modest liberalization through a revised tariff exclusion process.  The Biden Administration is likely to keep in place the current solar safeguard measures (a tariff rate quota on solar cells, and tariffs on solar modules).  

On the other hand, the likelihood of the U.S. imposing new tariffs to retaliate against European or others Carbon Border Adjustment tariffs or digital services taxes is much diminished, due in part to the agreement on an international corporate minimum tax and increased cooperation over climate change policies.  Congress is also likely to reinstate expired tariff reductions under the Generalized System of Preferences (GSP) and the Miscellaneous Tariff Bill (MTB) with numerous small businesses and others complaining that the lapse in these two programs at the end of 2020 has cost importers $1.6 billion in tariffs. 

Why won’t Joe Biden stand up to Iran?

This week marks two years since Iranian terror mastermind Major General Qassem Soleimani was torn apart by a Reaper drone missile in Baghdad, on the orders of Donald Trump. The Iranian regime has marked the anniversary with a flurry of antagonism throughout the region. On Monday, a coalition base outside Iraq’s main airport was attacked by two drones armed with missiles with the words ‘Soleimani’s revenge’ on them. Both were safely shot down. That same day, two Israeli newspaper websites, the Jerusalem Post and Maariv, were hacked and made to display a picture of a missile being launched from Soleimani’s ring at Israel’s nuclear reactor. These provocations were preceded by a letter to the UN General Assembly on Saturday, in which Iran’s presidential office demanded a resolution against the United States. And in a furious tirade delivered at Tehran’s largest mosque, Iranian president Ebrahim Raisi called for ‘justice and retribution’ against Trump, former secretary of state Mike Pompeo and ‘other criminals’. ‘Otherwise, I will tell all US leaders that without a doubt the hand of revenge will emerge from the sleeve of the Muslim nation,’ he said.

His words rang rather hollow. Rewind 24 months, and the rhetoric from Tehran was even more blood-curdling. ‘Forceful revenge awaits the criminals who have his blood and the blood of other martyrs on their hands,’ vowed Ayatollah Ali Khamenei in the aftermath of the killing. Back then, many commentators took the Ayatollah at his word, breathlessly predicting World War III in response to Soleimani’s death. ‘Did America just assassinate, without any congressional authorisation, the second most powerful person in Iran, knowingly setting off a potential massive regional war?’ Chris Murphy, the Democrat senator, tweeted to his one million followers. But when Tehran’s revenge actually came, it was, shall we say, less serious. A few salvos of ballistic missiles were launched at two US air bases in Iraq, producing no fatalities. After which, pretty much nothing.

The basic fact – as Trump seemed to instinctively understand and trade upon – is that America holds the most powerful military force the world has ever seen. Having spent about six-and-a-half trillion dollars on military adventures in the Middle East since 9/11, the United States has accumulated vast strength in the region, including about 60,000 servicemen and women. The US runs about 800 declared airbases around the globe. Many are dotted around the Islamic Republic, in countries like the UAE, Oman and Saudi Arabia. In addition, it has troops in international peacekeeping bases and covert installations. The mighty 5th Fleet, which includes hundreds of vessels and aircraft and tens of thousands of personnel, is based at Naval Support Activity Bahrain, near Khalifa Bin Salman Port in Iraq. About 13,000 troops are stationed in Kuwait, and thousands more are spread elsewhere across the Gulf. And America, of course, holds the most powerful nuclear arsenal on Earth. Unlike – to pluck a country out of the air – Iran. Compared to the sheer scale and force of the United States’ war machine, the Islamic Republic ranks about 14th in the world in terms of size and power. It does, of course, command a network of regional proxies that extend its reach throughout the Middle East and North Africa. But the United States has allies, too, and these include the most sophisticated militaries in the world, several of which are nuclear-armed.

That is not for one moment to underestimate the threat posed by Iran. It is the foremost sponsor of terror in the region, if not the world, capable of fighting an all-out war on multiple fronts. Its strategic cunning has been deployed in various theatres, using a combination of soft and hard power to win great influence in host countries. Through proxies like Hezbollah and groups like Hamas, it poses a serious asymmetric threat to Israel and the Gulf states. Meanwhile, its puppet militia, like the Houthis in Yemen and Kata’ib Hezbollah in Iraq, have been responsible for numerous atrocities.

It is very clear that Tehran’s game plan is to slyly build its conventional and nuclear capabilities without provoking the United States or its allies into a devastating response. The Islamist regime takes one careful step at a time, each emboldening the next. In this way, it is approaching the nuclear threshold by way of grandmother’s footsteps. The point of that children’s game, however, is that fierce grandmother eventually turns round and chases the children away. Unlike a certain inhabitant of the White House.

The current American administration doesn’t seem to believe in its own power in the way that Donald Trump did. It is true that Trump continued to draw down US troops from overseas, extending the trend that began under Obama. And it is true that he understood that the American public had little stomach for further military exploits overseas – just as Joe Biden turned his back on ‘forever wars’. But Trump was also the very embodiment of the madman theory. This is the doctrine, usually associated with Nixon, by which America’s enemies are led to believe that the president might be unhinged enough to do something silly. Under Biden, that strategic edge is more than gone. With the ultra-dovish Robert Malley in charge of the nuclear negotiations with Iran, the military option has not even got near the table. This has caused immense frustration to US allies, not least Israel, who understand that without it, the West is all carrot and no stick.

It goes without saying that no sane person would wish for the use of force against Iran’s nuclear weapons programme. It would involve either a large-scale ground invasion or massive airstrikes, leading to great loss of life, worldwide instability and no guarantee of success. Some Israeli officials talk positively of a ‘contained crisis’; but this is to be optimistic at best, oxymoronic at worst. Nonetheless, if Iran is ever going to be persuaded to draw in its horns, its leaders need both to see a credible military threat on the table, and to have reasonable doubt that in the right set of circumstances it might be used, by a president either mad or sane. Despite Afghanistan and despite Iraq, the United States armed forces are the largest and most advanced on Earth. If it came to all-out war, together with their allies, they would present a devastating force. The world knows it. America’s enemies definitely know it. It is just a shame that America doesn’t know it itself.