‘Daly’ Somewhere in the South, possibly Miami 1941
Plenty reasons. Plenty for the other side too.
• Why the Fed Should Raise Rates Now (Brad Brooks)
Now that U.S. stock markets have experienced their first 10% correction since 2011, investors are again looking to the Federal Reserve to bail them out. Although the Fed hasn’t raised interest rates in almost 10 years, sympathetic pundits say it’s still too soon to raise them now. The economist Larry Summers, runner-up for the top spot at the Fed a few years ago, says raising rates would risk “tipping some parts of the financial system into crisis.” How did our financial system weaken to the point where a quarter of a % increase in rates is more than it can handle? The process started a dozen years ago, when Alan Greenspan – then chairman of the Fed – decided to lower rates to 1% after the country had emerged from the mild recession that followed the popping of the tech bubble.
Then, when the Fed began to tighten policy, it did so with agonizing slowness – raising rates just a quarter of a % at a time, so as not to upset the financial markets. This set the table for the subprime housing debt mess in a way that neither Greenspan nor his successor, Ben Bernanke, could foresee. Everyone assumed real estate was too diverse an asset class to ever be in a bubble. Despite credible warnings about the potential problems starting in 2005, the Fed and Treasury were still blindsided in 2008 by the enormous losses at Bear Stearns, Lehman and AIG. Suddenly, the emergency 0% overnight lending rate was required and, almost seven years later, it’s still deemed necessary. Meanwhile, three rounds of quantitative easing have added roughly $3.5 trillion in purchases to the Fed’s balance sheet.
What we have to show for this is a more concentrated financial system, in which the top five banks control nearly half of all U.S. financial assets. Even more troubling is evidence that, this time around, asset bubbles have formed in multiple arenas. Earlier this year, the economist Robert Shiller, who predicted the tech and real estate bubbles, warned that the U.S. now faces a potential bubble in the bond market. The high-end housing and art markets also seem to be in bubbly territory, but before they can cause too much trouble we’re likely to see a serious correction in the U.S. equity market.
The trigger is likely to be the hundreds of billions of dollars worth of bad debt in the energy sector – loans that were made to finance the fracking frenzy. Even when the price of oil was twice what it is today, many of the borrowers involved were not cash-flow positive, and few adequately hedged their exposure. While the experts like to talk about how quickly the price of oil rebounded after the financial crisis, the current oversupply makes today’s situation more akin to what happened in the 1980s. That took years to correct, as desperate companies and governments kept producing more crude.
If volatility stays no matter what they do, they might as well…
• Volatility Seen Lingering No Matter What The Fed Does (Reuters)
While investors, traders and forecasters may be on the fence as to whether the Fed pulls the trigger this week on the first U.S. interest rate hike in nearly a decade, Wall Street’s “smart money” is decisive on one thing: market volatility will linger. Heading into Thursday’s potentially momentous decision on interest rates from the Federal Open Market Committee, the Federal Reserve’s monetary policy-setting panel, speculative positions in CBOE VIX index futures are the most net long on record. To this crowd of hedge funds and other big speculators, it really doesn’t matter what the Fed does. Raising rates for the first time since 2006 would almost certainly send waves through equity markets, and not moving will keep the guessing game – and accompanying market gyrations – alive for weeks to come.
“There is a general consensus in the market that the Fed meeting will continue the volatility, and if they don’t do anything it may sustain the volatility at least for six more weeks till their next meeting,” said J.J. Kinahan, chief strategist at TD Ameritrade in Chicago. The most recent weekly Commitments of Traders data from the Commodity Futures Trading Commission shows speculative net long positions in VIX futures stood at 37,925 contracts as of Sept. 13. Not only is that a record high, it is more than two standard deviations from the norm.
Since VIX futures, a forward-looking gauge of market risk, were introduced in 2004, speculative positions have been skewed toward lower volatility far more often than not. Long VIX futures positions benefit from increased volatility and can be used to protect equity portfolios. Moreover, positioning in VIX futures has flipped like never before over the last month as the Fed guessing game has been compounded by worries over the health of China’s economy and its wobbly stock market. In contrast to the latest positioning, speculators in early August were net short by 64,445 contracts – a reversal of more than 100,000 in five weeks – highlighting the strong conviction of hedge funds and other large speculators that market gyrations are far from over.
“..Chinese bank assets rose about 400% since 2007, and are now about $31 trillion against an economy with a GDP of $10 trillion.” “..a “likely” 10% asset loss in that banking sector would amount to $3 trillion.”
• Kyle Bass: China’s Real Problem Is Its Banking Sector (CNBC)
While many are watching its stock market, China’s real problem may lie with its banking system, according to one hedge fund manager. Kyle Bass, Hayman Capital Management founder and managing partner, told CNBC’s “Squawk on the Street” on Tuesday that Chinese banks will likely experience losses that may affect the country as a whole. “Those that are watching whether Chinese stocks go up or down aren’t paying attention, in my opinion, to what the real problem is,” Bass said. “And the real problem is the loans in this banking sector.” The hedge fund manager said that Chinese bank assets rose about 400% since 2007, and are now about $31 trillion against an economy with a GDP of $10 trillion.
“When you run a bank expansion that aggressively, that quickly, you’re going to have some losses,” he said, adding that “the scary thing about that” is a “likely” 10% asset loss in that banking sector would amount to $3 trillion. Such losses would force China to use much of its foreign exchange reserves (which stand at about $3.6 trillion) and sell bonds to recapitalize the banking system, he said. Bass said these issues are mirrored in many emerging markets—especially those in Asia—and could therefore ultimately affect global GDP.
While the ripples of an emerging market downturn could draw U.S. GDP lower than estimated, countries like South Africa could be seriously impacted. Bass said his investment group is closing watching nations that run twin deficits, and those that may have to devalue their currency “in order to come back to some level of competitiveness with the rest of the world.” As the loan cycle forces emerging market banks to see steep losses, “the next two years are going to be tough,” he said. “We talk about this race to the bottom and this currency war. Well it’s happening as we speak,” he said. “China literally just started with its devaluation process—wait until you see where that goes.”
When the state can’t keep its own companies alive, who’s going to trust it to save stocks?
• China Braces for Second Onshore Bond Default by State Firm (Bloomberg)
China National Erzhong Group may miss an interest payment later this month after one of its creditors filed a restructuring request, putting it at risk of becoming the second state-owned company to default in the nation’s onshore bond market. The smelting-equipment maker might not be able to pay a coupon that’s due Sept. 28 on its 1 billion yuan ($157 million) of 5.65% 2017 notes if a local court accepts the creditor’s restructuring application before that date, according to a statement posted on Chinamoney.com.cn. China National Erzhong, based in China’s western Sichuan province, issued the five-year securities in 2012 at par and the debentures are currently trading at 67.72% of that.
Uncertainty over the payment comes as deflation risks, overcapacity and spiraling corporate debt cloud the outlook for China’s economy, forecast to expand at the slowest pace since 1990 this year. Baoding Tianwei Group failed to pay interest of 85.5 million yuan on one of its bonds in April, becoming the first state-owned enterprise to default in the onshore market. “Because Erzhong is a state-owned company, if it defaults it may arouse investors’ concern about companies’ credit risks,” said Qu Qing, a bond analyst at Huachuang Securities Co. in Beijing.
Five interest rate cuts by the People’s Bank of China since November and rules to relax yuan bond issuance onshore mean Chinese companies are becoming less reliant on dollar funding and more reliant on the nation’s domestic market. Local corporate bond sales have jumped 77% to 7.85 trillion yuan in 2015 from the same period last year, according to data compiled by Bloomberg. The extra spread investors demand to own five-year AA- rated bonds over government debt has narrowed 69.5 basis points since Dec. 31 to 214 basis points Tuesday, according to data compiled by ChinaBond. China National Erzhong is a wholly owned subsidiary of state-owned China National Machinery, according to a China International Capital Corp. report in April.
And New Zealand, and Canada, and…
• Chinese Retreat From Australian Property As Capital Controls Bite (AFR)
Chinese purchases of Australian property have dropped significantly in the past month, according to agents, as buyers struggle to shift money out of the country following Beijing’s move to tighten capital controls. One Chinese agent said the latest efforts by the central government to avoid large capital outflows were having a “significant impact” on his business. “It has affected 70 to 80% of current transactions and some have already been suspended,” said the agent who asked not to be named. The tighter foreign exchange rules are also set to impact the federal government’s relaunched Significant Investor Visa (SIV), which provides fast-tracked residency for those investing at least $5 million into Australia.
“I think it will be big, big trouble for the SIV program because the amount of money is just too large,” said one Shanghai-based adviser, who sells Australian property and advises wealthy clients on their migration plans. Only seven SIV applications have been submitted since the new rules were introduced on July 1, which require investors to put their money into riskier assets such as venture capital and emerging companies. China has previously tolerated significant capital outflows via so called “grey channels”, but has tightened up enforcement in recent weeks as the economy slows and fears over capital flight put downward pressure on the currency.
The crackdown from Beijing has seen Chinese banks setting up watch lists for unusual transactions, according to one bank manager, who asked not to be named as he was not authorised to speak about the policy. He said the operation was aimed at cracking down on a practice whereby family and friends of those wanting to purchase a property overseas all transfer US$50,000 into an overseas account. That’s the limit each Chinese individual is allowed to move out of the country each year. The purchaser then pays back his friends and family in China and uses the money from the overseas account to put down a deposit on the property.
Relatively small, but of course crazily leveraged.
• 1,300 Hedge Funds Liquidate Amid China’s $5 Trillion Stocks Selloff (Bloomberg)
It’s about to get even uglier for China’s hedge funds. The newfangled industry, short on expertise and ways to protect itself from market declines, has seen almost 1,300 funds liquidate amid China’s $5 trillion stocks selloff, and a similar number may be at risk, according to Howbuy Investment Management Co. Now, a government crackdown on short selling and other hedging strategies have made prospering in a bear market difficult. It’s an inglorious turn for China’s on-again, off-again love affair with stocks, which saw the number of hedge-fund-like vehicles explode in past years as the government made it easier to register funds and introduced new financial instruments. The market rout – and the regulatory response to it – has revealed cracks in the industry that suggest it may need years to recover.
In the most devastating blow to domestic hedge funds, China has imposed new restrictions on trading in stock-index futures, a key investment strategy to dampen volatility and avoid big losses. “It spells the end, at least temporarily, for China domestic hedge funds,” Hao Hong at BOCOM International said in an interview. China’s hedge-fund industry has grown rapidly as the nation’s stock market jumped and wealthy individuals and smaller institutions sought to profit from that surge. The number of private placement securities funds, the Chinese equivalent of hedge funds, more than doubled from the beginning of the year, peaking at 11,159 as of Aug. 31, managing 1.62 trillion yuan (about $254 billion) in assets, according to the China Securities Regulatory Commission. Individual investors are required to have at least 5 million yuan in assets to invest in hedge funds, while institutions must have at least 10 million yuan.
While these vehicles in China are broadly categorized as hedge funds, there is one key difference with counterparts in the U.S., Europe and Hong Kong. Most of them are long-only, meaning they bet solely on rising markets. Even before government restrictions on practices such as short-selling, many limited hedging so they maximize benefits from a market that had advanced almost 50% in the two years through 2014 and rallied another 60% through mid-June. Most China-based managers rarely wager against individual securities because the practice is expensive and many new managers lack the expertise for complex strategies, Alexis He at Z-Ben Advisors said.
If you don’t let people sell anything, you don’t have a market.
• Chief Of Biggest China Brokerage Swept Up In Stock-Rout Probe (Bloomberg)
The president of China’s biggest brokerage has been swept up in a widening campaign to root out financial wrongdoing and assign blame for the nation’s US$5 trillion stock rout. The probe of Citic Securities Co. president Cheng Boming comes after the state-run Xinhua News Agency reported last month that four executives at Citic had admitted to so-called insider trading. The firm is part of Citic Group, the nation’s first state-owned investment corporation, which was set up in 1979 as part of paramount leader Deng Xiaoping’s push to modernize the country. Since the market crash, China’s targets have ranged from so-called “malicious” short sellers to a journalist from business magazine Caijing whose report was alleged to have caused market panic. Authorities say they want to “purify” the market.
“There does seem to be a bit of a witch hunt for a scapegoat at the moment, but I think this is mostly signaling by the authorities that they will not tolerate what they perceive as ‘unhelpful’ selling in the market,” said Tony Hann, a London-based money manager at Blackfriars Asset Management, which oversees about US$350 million. Citic confirmed the police investigation of Cheng in a statement to Shanghai’s stock exchange. Shares of the company fell 1.2% in Shanghai to 13.36 yuan, the lowest intraday level since Nov. 7, as of 9:38 am local time. The stock has slumped 58% since June amid a rout in Chinese equities that dragged down the benchmark index from a more than seven-year high. Citic Securities is one of the brokerages whose booming margin lending had helped fuel the stock-market’s prior rally.
Just think of all the money made by the weapons industry in the intervening years…
• West ‘Ignored Russian Offer In 2012 To Have Syria’s Assad Step Down’ (Guardian)
Russia proposed more than three years ago that Syria’s president, Bashar al-Assad, could step down as part of a peace deal, according to a senior negotiator involved in back-channel discussions at the time. Former Finnish president and Nobel peace prize laureate Martti Ahtisaari said western powers failed to seize on the proposal. Since it was made, in 2012, tens of thousands of people have been killed and millions uprooted, causing the world’s gravest refugee crisis since the second world war. Ahtisaari held talks with envoys from the five permanent members of the UN security council in February 2012. He said that during those discussions, the Russian ambassador, Vitaly Churkin, laid out a three-point plan, which included a proposal for Assad to cede power at some point after peace talks had started between the regime and the opposition.
But he said that the US, Britain and France were so convinced that the Syrian dictator was about to fall, they ignored the proposal. “It was an opportunity lost in 2012,” Ahtisaari said in an interview. Officially, Russia has staunchly backed Assad through the four-and-half-year Syrian war, insisting that his removal cannot be part of any peace settlement. Assad has said that Russia will never abandon him. Moscow has recently begun sending troops, tanks and aircraft in an effort to stabilise the Assad regime and fight Islamic State extremists. Ahtisaari won the Nobel prize in 2008 “for his efforts on several continents and over more than three decades, to resolve international conflicts”, including in Namibia, Aceh in Indonesia, Kosovo and Iraq.
On 22 February 2012 he was sent to meet the missions of the permanent five nations (the US, Russia, UK, France and China) at UN headquarters in New York by The Elders, a group of former world leaders advocating peace and human rights that has included Nelson Mandela, Jimmy Carter, and former UN secretary general Kofi Annan. “The most intriguing was the meeting I had with Vitaly Churkin because I know this guy,” Ahtisaari recalled. “We don’t necessarily agree on many issues but we can talk candidly. I explained what I was doing there and he said: ‘Martti, sit down and I’ll tell you what we should do.’
“He said three things: One – we should not give arms to the opposition. Two – we should get a dialogue going between the opposition and Assad straight away. Three – we should find an elegant way for Assad to step aside.” Churkin declined to comment on what he said had been a “private conversation” with Ahtisaari. The Finnish former president, however, was adamant about the nature of the discussion. “There was no question because I went back and asked him a second time,” he said, noting that Churkin had just returned from a trip to Moscow and there seemed little doubt he was raising the proposal on behalf of the Kremlin.
And others will follow that. Watch Croatia and Slovenia. Europe will need to close all entrances. And even then refugess will still keep coming.
• Hungary Locks Down EU Border, Taking Migrant Crisis Into Its Own Hands (Reuters)
Hungary’s right-wing government shut the main land route for migrants into the EU on Tuesday, taking matters into its own hands to halt Europe’s influx of refugees. An emergency effort led by Germany to force European Union member states to accept mandatory quotas of refugees collapsed in discord. Berlin called for financial penalties against countries that refused to accommodate their share of migrants, drawing a furious response from central Europe. A Czech official accused Berlin of making empty threats while Slovakia said such penalties would bring the “end of the EU”. Under new rules that took effect from midnight, Hungary said anyone seeking asylum at its border with Serbia, the EU’s external frontier, would automatically be turned back.
Anyone trying to sneak through would face jail. In scenes with echoes of the Cold War, families with small children sat in fields beneath the former communist country’s new 3.5-metre (10 foot) high fence, which runs almost the length of the border, topped with razor wire. [..] Eastern European countries argue that a more welcoming stance encourages more people to make dangerous voyages, and risks attracting an uncontrolled influx that would overwhelm social welfare systems and dilute national cultures. Under its new rules, Hungary said it will now automatically turn back refugees who arrive by land over the main route from Serbia, a country it has declared “safe”. Asylum claims would be processed within eight days and those at the Serbian border should be rejected within hours.
“If someone is a refugee, we will ask them whether they have submitted an asylum request in Serbia. If they had not done so, given that Serbia is a safe country, they will be rejected,” Orban was quoted as telling private broadcaster TV2 on Monday. “We will start a new era,” government spokesman Zoltan Kovacs said shortly after midnight on the border. “We will stop the inflow of illegal migrants over our green borders.” Serbia called the new Hungarian rules “unacceptable”. The United Nations disputed the definition of Serbia as safe, saying the poor ex-Yugoslav state lacked capacity to house thousands of refugees turned back at Europe’s gates.
Poorer countries have more decency.
• Spanish ‘Safe Cities’ Hope To Offer A Haven For Refugees (Le Monde)
The Spanish government, led by Mariano Rajoy, may have dragged its feet in response to pressure from Brussels to take Syrian refugees, but Barcelona, Madrid and several other cities governed by councils with roots in the indignado movement took the initiative with a network of “safe cities” to assist some of those arriving in Europe. Ada Colau, the mayor of Barcelona, started the ball rolling when she announced the launch of a register of families willing to open their home to refugees or simply help them. It proved an immediate success. Thousands of Catalans emailed their details to the list. A dozen cities have signed up to the scheme. Madrid mayor Manuela Carmena has been looking at “ways of alleviating the distress”.
Valencia plans to open emergency accommodation for refugees and is allocating 110 social workers specifically to look after children. Several councils have asked banks to release housing stock that has been vacant since the property market tumbled. Other cities involved include Pamplona, Zaragoza, La Coruña and Malaga. Colau said the predicament of people fleeing war and persecution was “shameful, condemning Europe for dodging the issue and criticising the “ridiculous” figure initially proposed by the Rajoy government to cope with the crisis. The Spanish government has since agreed it would accept its share of migrants under the European commission’s proposed new quota system, according to AFP.
Spain agreed to take in another 14,931 refugees as proposed by the commission, in addition to the 2,379 it had initially said it would accept. The government had initially announced that it would only be accepting 2,379 refugees, as part of EU efforts to solve the crisis, whereas Brussels had initially wanted it to take 5,849.
Maybe Europe likes it that way.
• Refugees May Become Trapped In Greece, Minister Fears (Reuters)
Greece may find it increasingly hard to cope with refugees entering the country as unilateral decisions by other European nations cause bottlenecks and worsening weather fails to deter new arrivals, its interim maritime minister said. Greece has this year become the main gateway for hundreds of thousands of refugees flowing into Europe, many fleeing conflict in Syria and Afghanistan, in the continent’s biggest migration crisis since World War Two. “We cannot carry this load alone,” Christos Zois told Reuters in an interview on Tuesday from his office overlooking the busy port of Piraeus, where thousands of refugees and migrants arrive from the country’s eastern islands every day.
“This is not Greece’s problem alone. We’re not guarding Greece’s borders, we’re guarding the European Union’s borders. We need support – economic and moral support.” Its economy already crippled by years of recession and bailout-driven austerity, Greece has repeatedly called for European Union funds to help it weather the refugee crisis. Of the record 430,000 refugees and migrants that have made the journey across the Mediterranean to Europe so far this year, 309,000 have arrived via Greece, according to the International Organization for Migration. In July and August alone, Greece saw 150,000 arrivals, Zois said.
So far the vast majority have used the country only as a transit point along a route taking them north to richer states. But decisions by Hungary to fence off that route and by Germany to reimpose border controls have increased the risk that Greece will be unable to move the migrants on, possibly tipping its economy back into recession. Asked if he was concerned that refugees might become trapped in Greece, the minister said: “I’m not optimistic because I see that everyone is buying time which, meanwhile… is running out.” His unease is shared by the IOM, a United Nations partner agency. “The expectation is that the refugees and migrants …will just build up … and add enormous pressure on the Greek authorities,” IOM spokesman Leonard Doyle told a briefing in Geneva.
Another vile institution in the EU: “..could imagine Frontex one day having forces of its own to deploy.”
• Europe’s Frontex Gears Up To Thwart Unwanted Migrants (Reuters)
Europe’s border agency Frontex is preparing to speed up identification of illegal migrants and help deport them in large numbers as irregular arrivals this year topped a record half a million. “When you have up to 40% of migrants coming from a third country not granted refugee status and if nothing happens, if they are not returned, what message does the EU convey to potential migrants?” Frontex head Fabrice Leggeri told Reuters a day after EU ministers agreed to grant the agency more powers and resources. EU data show just under half of asylum claims were granted last year but less than half of those rejected were deported. Frenchman Leggeri, who took over the coordinating agency for the EU’s external borders in January, warned that more migrants may have to be detained and forcibly sent home.
But he voiced concern that national governments have cut back on border guards during the recession, limiting the numbers of trained personnel available for secondment by Frontex to crisis zones. After a call last week by EU chief executive Jean-Claude Juncker for a dedicated EU border guard and coastguard service, Leggeri said he was keen to extend typical periods of secondment for staff to a year or more from as little as a month and could imagine Frontex one day having forces of its own to deploy. Funding and staff are still being worked out, Leggeri said, but Frontex is now working on ways to speed fingerprinting and registration of people claiming asylum, notably to filter those fleeing for their lives from those simply seeking a better life.
With Europe opening its doors to Syrians, Frontex operations in Greece had revealed high levels of “nationality swapping” – of people initially claiming to be Syrian, 13% were not. “Those 13% are very likely irregular migrants, some are from North Africa,” he said. “They must be returned.”
Clueless in Frankfurt: “China can still stabilize its situation and to keep growth above 6% is achievable in the short term.”
• ECB Says Quantitative Easing Relatively Small So Far (Reuters)
The European Central Bank has scope to buy more assets as its quantitative easing has been small compared to similar schemes elsewhere, ECB Vice President Vitor Constancio said, adding that Europe also needs the US and Chinese economies to motor ahead. The asset buys, started in March to lift the bloc out of deflation, helped Europe to weather the Greek and Chinese turmoil but euro area inflation could turn negative again in the coming months so the bank stands ready to increase the size, composition and duration of the scheme, if necessary, Constancio said. Drawing a comparison with other major central banks around the globe, Constancio said the European scheme is dwarfed by past asset buys, particularly by the US Federal Reserve and the Bank of Japan.
“The total amount that we have purchased represents 5.3% of the GDP (gross domestic product) of the euro area, whereas what the Fed has done represents almost 25% of the US GDP, what the Bank of Japan has done represents 64% of the Japanese GDP and what the UK has done 21% of the UK’s GDP,” Constancio told Reuters in an interview. “So we are very far from what the major central banks have done,” Constancio, 71, said. “This is not a benchmark …(but) there is scope, if the necessity is there.” But Constancio also dismissed criticism from some that quantitative easing was not working, pointing to improved inflation expectations, growth in bank lending and a drop in borrowing costs despite the anxiety in financial markets.
He also said that the bank needs to look through volatility even if market turbulence is now more prevalent than in the past. “Monetary policy is not about fine tuning volatility in financial markets,” he said. “Central banks should be independent from financial markets and not follow all their fluctuations.” The ECB’s 1 trillion-euro plus asset-buying program is set to run for another year but the majority of analysts polled by Reuters expect the scheme to be expanded as sharply lower commodity prices dampen long term price expectations and as inflation, now at 0.2%, takes years to pick up. Indeed, one of the ECB’s top measures of long-term inflation expectations, the five-year, five-year euro zone breakeven forward has fallen to below 1.7%, short of the ECB’s inflation target of just under 2%.
Pointing to uncertainties, Constancio said much depended on the United States and China. “We need a strong recovery in the US,” Constancio said. “China can still stabilize its situation and to keep growth above 6% is achievable in the short term.”
More equal.
• Ukraine On Brink Of Debt Deal That Greece Can Only Dream Of (Ind.)
In a rare piece of European economic good news, Ukraine’s major creditors look set to write off 20% of the embattled country’s foreign debt. Prime Minister Arseniy Yatsenyuk, speaking at an economic conference on the weekend, said he expects parliament to approve the measures in the next few days. The deal will effectively restructure £11.7bn of Ukraine’s total foreign loans, thus helping the country avoid the drawn-out negotiations suffered by Greece in recent months. It also unlocks support from the IMF and halts principal payments for the next four years to help the country get back on its feet. Ukraine is currently in the grip of a deep recession following mismanagement by previous governments as well as dealing with ongoing skirmishes with pro-Russia rebels in the east of the country.
Ukraine’s finance minister Natalie Jaresko told The New York Times that the deal showed that creditors can work with debt-burdened countries and not end up on “opposite sides of the table”: It’s a benchmark for emerging markets [that could serve as a template]. It is every sovereign’s dream. I would hope that it shows that you don’t need to rush into a default, even having the willingness to use a moratorium if needed. The deal has been praised in many corners, but it’s not clear what will happen if Russia, a major creditor not present at the talks, decides not to participate. The domineering neighbour is unlikely to view the deal favourably given that the Ukrainian finance ministry released a statement saying the deal will allow more money to be channelled into fighting pro-Russia separatists.
We’re going to wreck it all.
• Tuna And Mackerel Populations Suffer Catastrophic 74% Decline (Guardian)
Tuna and mackerel populations have suffered a “catastrophic” decline of nearly three quarters in the last 40 years, according to new research. WWF and the Zoological Society of London found that numbers of the scombridae family of fish, which also includes bonito, fell by 74% between 1970 and 2012, outstripping a decline of 49% for 1,234 ocean species over the same period. The conservation charity warned that we face losing species critical to human food security, unless drastic action is taken to halt overfishing and other threats to marine life. Louise Heaps, chief advisor on marine policy at WWF UK, said: “This is catastrophic. We are destroying vital food sources, and the ecology of our oceans.”
Attention in recent years has focused on species such as bluefin tuna, now on the verge of extinction, but other close relatives commonly found on restaurant menus or in tins, such as yellowtail tuna and albacore, are now also becoming increasingly scarce. Only skipjack, also often tinned, is showing “a surprising degree of resilience”, according to Heaps, one of the authors of the Living Blue Planet report, published on Wednesday. Other species suffering major declines include sea cucumbers, a luxury food in Asia, which have fallen 98% in number in the Galapagos and 94% in in the Egyptian Red Sea. Populations of endangered leatherback turtles, which can be seen in UK waters, have plummeted. Overfishing is not the only culprit behind a halving of marine species since 1970.
Pollution, including plastic detritus which can build up in the digestive systems of fish; the loss of key habitats such as coastal mangrove swamps; and climate change are also taking a heavy toll, with the oceans becoming more acidic as a result of the carbon dioxide we are pouring into the atmosphere. “I am terrified about acidification,” Heaps told the Guardian. “That situation is looking very bleak. We were taught in the 1980s that the solution to pollution is dilution, but that suggests the oceans have an infinite capacity to absorb our pollution. That is not true, and we have reached the capacity now.” She predicts that all of the world’s coral reefs could be effectively lost by 2050, if current trends are allowed to continue unchecked, and said that evidence of the effects of acidification – which damages tiny marine animals that rely on calcium to make their shells and other organs – could be found from the Antarctic to the US west coast.
Externalities. Bills to pay later.
• Land Degradation Costs World $10.6 Trillion A Year, 17% of World GDP (Guardian)
Land degradation is costing the world as much as $10.6tn every year, equivalent to 17% of global GDP, a report has warned. More than half of the world’s arable land is moderately or severely degraded, according to a report published on Tuesday by the Economics of Land Degradation (ELD) Initiative (pdf). The report estimates the cost of this environmental destruction, not only from lost agricultural production and diminished livelihoods, but also from the lost value of ecosystem services formerly provided by the land, including water filtration, erosion prevention, nutrient cycling and the provision of clean air. Land degradation – decreased vegetation cover and increased soil erosion – also means that land is less able to store carbon, contributing to climate change.
Land use changes represent the second biggest source of greenhouse gas emissions after fossil fuel combustion, the study says. “Burgeoning populations with shifting demographics and distributions are increasing the demands on land to produce food, energy, water, resources and livelihoods,” the report says. Desertification, the result of climate change, is having a profound effect on migration. Karmenu Vella, European commissioner for Environment, Maritime Affairs and Fisheries, said that land degradation and desertification is forcing hundreds of thousands to move from their homes. A study by the UN’s Convention to Combat Desertification (UNCCD), which was cited by the authors of the ELD report, found that the process may drive an estimated 50 million people from their homes in the next 10 years.
An awfully underestimated civilization.
• Indigenous Australia Storytelling Accurate on Sea Level Rises 7000 Years Ago (G.)
Indigenous stories of dramatic sea level rises across Australia date back more than 7000 years in a continuous oral tradition without parallel anywhere in the world, according to new research. Sunshine Coast University marine geographer Patrick Nunn and University of New England linguist Nicholas Reid believe that 21 Indigenous stories from across the continent faithfully record events between 18,000 and 7000 years ago, when the sea rose 120m. Reid said a key feature of Indigenous storytelling culture – a distinctive “cross-generational cross-checking” process – might explain the remarkable consistency in accounts passed down by preliterate people which researchers previously believed could not persist for more than 800 years.
“The idea that 300 generations could faithfully tell a story that didn’t degenerate into Chinese whispers, that was passing on factual information that we know happened from independent chronology, that just seems too good to be true, right?” Reid told Guardian Australia. “It’s an extraordinary thing. We don’t find this in other places around the world. The sea being 120 metres lower and then coming up over the continental shelf, that happened in Africa, America, Asia and everywhere else. But it’s only in Australia that we’re finding this large canon of stories that are all faithfully telling the same thing.” Scholars of oral traditions have previously been sceptical of how accurately they reflect real events.
However, Nunn and Reid’s paper, “Aboriginal memories of inundation of the Australian coast dating from more than 7000 years ago”, published in Australian Geographer, argues the stories provide empirical corroboration of a postglacial sea level rise documented by marine geographers. Some of the stories are straight factual accounts, such as those around Port Phillip Bay near Melbourne, which tell of the loss of kangaroo hunting grounds. Others, especially older stories such as those from around Spencer Gulf in South Australia, are allegorical: an ancestral being angered by the misbehaviour of a clan punishes them by taking their country, gouging a groove with a magical kangaroo bone for the sea to swallow up the land.
“Our sense originally is that the sea level must have been creeping up very slowly and not been noticeable in an individual’s lifetime,” Reid said. “But we’ve come to realise through conducting this research that Australia must in fact have been abuzz with news about this. “There must have been constant inland movement, reestablishing relationships with country, negotiating with inland neighbours about encroaching onto their territory,” Reid said. “There would have been massive ramifications of this.” The fortunes of those faced with the decision to retreat as camps, tracks and dreaming places were slowly swallowed up – especially on islands – were mixed.
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