Bageant Archives - The Automatic Earth

A wonderfully rich, must-read, multi-layered expose of the distance between various groups of Americans. Makes me wish Joe Bageant were still alive to shine his light on the elections.

• Dangerous Idiots: The Liberal Media Elite and Working-Class Americans (Smarsh)

Last March, my 71-year-old grandmother, Betty, waited in line for three hours to caucus for Bernie Sanders. The wait to be able to cast her first-ever vote in a primary election was punishing, but nothing could have deterred her. Betty – a white woman who left school after ninth grade, had her first child at age 16 and spent much of her life in severe poverty – wanted to vote. So she waited with busted knees that once stood on factory lines. She waited with smoking-induced emphysema and the false teeth she’s had since her late 20s – both markers of our class. She waited with a womb that in the 1960s, before Roe v Wade, she paid a stranger to thrust a wire hanger inside after she discovered she was pregnant by a man she’d fled after he broke her jaw.

Betty worked for many years as a probation officer for the state judicial system in Wichita, Kansas, keeping tabs on men who had murdered and raped. As a result, it’s hard to faze her, but she has pronounced Republican candidate Donald Trump a sociopath “whose mouth overloads his ass”. No one loathes Trump – who suggested women should be punished for having abortions, who said hateful things about groups of people she has loved and worked alongside since childhood, whose pomp and indecency offends her modest, midwestern sensibility – more than she. Yet, it is white working-class people like Betty who have become a particular fixation among the chattering class during this election: what is this angry beast, and why does it support Trump?

Former Australian foreign affairs minister and former NSW premier Bob Carr on the future after Trump.

• If You Think Donald Is Bad, Imagine Donald Trump 2.0 (Carr)

Amid the bleakness of Shakespeare’s King Lear one character, Edgar declares: the worst is not/so long as we can say “this is the worst”. Just when you think it can’t get any worse – Trump as candidate – here comes a more troubling prospect: the Trump next time, four years off, who defeats an unpopular President Clinton. It’s easy to tick off what gave the Republican nomination this time to a bossy, ignorant demagogue – the loss of industrial jobs, anxiety over borders and trade, racist resentment of minorities. Perhaps, as well, bewilderment at a multipolar world where America can’t get its way. None of these is about to fade. The anger of white working-class males, incited by Trump, is bound to simmer angrily at a distrusted woman in the White House imposing background checks for gun buyers and appointing three or four liberal justices to the Supreme Court.

After years of decline violent crime is increasing. The cost of Obamacare is rising and will need higher premiums and bigger subsidies. The Congressional Budget Office projects debt to rise from 2.9 to 4.9% of GDP over the decade. The US genius for innovation runs strong but the US system does a lousy job of distributing the gains. Stagnant real wages will feed grievance over immigration and there’s little a president can do about it. The US will continue to be defied – not just by Putin, even by President Duterte of the Philippines. North Korea or Syria are problems without solutions, leaving chauvinists to lament the US has never been more powerless. The truth is this catch cry has been thrown at every president since Harry Truman, including Ronald Reagan in his last years. But the US Right stridently insists America is surrounded by enemies.

The neo-cons who gave us Iraq and unleashed Islamic State are demanding America prove its greatness with new wars in the Middle East. If Clinton takes office on January 20 she will have been defined as “crooked Hillary” by Republican attacks over emails, the family foundation and paid speeches to Wall Street. Only one voter in three sees her as honest or trustworthy and she may have the lowest approval rating of any victor since polls began. No honeymoon. Little goodwill. Add lashings of misogyny to this toxic atmosphere and all is tailored for a Republican revival, and a revival with strong elements of Tea Party radicalism and Trump’s populist white nationalism. As a result the Republican Party of 2020 will be different from that of Reagan, the Bushes and McCain.

Funny how they stick to the term ‘assets’.

• Big Central Bank Assets Jump Fastest in 5 Years to $21 Trillion (BBG)

The world’s biggest central banks are bulking up their balance sheets this year at the fastest pace since 2011’s European debt crisis to boost lackluster economic recoveries with asset purchases that are supporting stock and bond prices. The 10 largest lenders now own assets totaling $21.4 trillion, a 10% increase from the end of last year. Their combined holdings grew by 3% or less in both 2015 and 2014. The accelerating expansion of central banks’ balance sheets comes as debate rages over whether their asset purchases and continued low interest rates are creating bubbles, especially in the bond market. Such quantitative-easing programs are aimed at driving up the prices of the securities they purchase to lower bond yields, encourage investment and boost economic growth.

The growth of central-bank holdings has coincided with the mostly upward trend of stock and bond prices. As the top 10 expanded their balance sheets by 265% since mid-October 2006, the MSCI All Country World Index of equities gained 19% and the Bloomberg Barclays Global Aggregate Index of bonds advanced 50%. Over the past decade, the Swiss National Bank expanded its holdings the most among those with the largest portfolios, almost eight-fold in U.S. dollar terms. The Bank of Russia was the least aggressive with a 68% increase. As the biggest banks’ holdings grew 10.4% this year, the stock gauge gained 3% and the bond benchmark jumped 7.4%. The BOJ and the ECB together have expanded their assets by $2.1 trillion since Dec. 31, more than accounting for all of the top 10’s combined increase. The balance sheets of the PBOC and the Fed fell 2% or less as the Swiss and the Central Bank of Brazil boosted their holdings 15% or more.

Ambrose agrees with Issing, but doesn’t like his explanations. The consequences of accepting that the euro has failed are too dire.

• Euro ‘House Of Cards’ To Collapse, Warns ECB Prophet (AEP)

The ECB is becoming dangerously over-extended and the whole euro project is unworkable in its current form, the founding architect of the monetary union has warned. “One day, the house of cards will collapse,” said Professor Otmar Issing, the ECB’s first chief economist and a towering figure in the construction of the single currency. Prof Issing said the euro has been betrayed by politics, lamenting that the experiment went wrong from the beginning and has since has degenerated into a fiscal free-for-all that once again masks the festering pathologies. “Realistically, it will be a case of muddling through, struggling from one crisis to the next. It is difficult to forecast how long this will continue for, but it cannot go on endlessly,” he told the journal Central Banking in a remarkable deconstruction of the project.

The comments are a reminder that the eurozone has not overcome its structural incoherence. A beguiling combination of cheap oil, a cheap euro, quantitative easing, and less fiscal austerity have disguised this, but the short-term effects are already fading. The regime is almost certain to be tested again in the next global downturn, this time starting with higher levels of debt and unemployment, and greater political fatigue. Prof Issing the lambasted the European Commission as a creature of political forces that has given up trying to enforce the rules in any meaningful way. “The moral hazard is overwhelming,” he said. The ECB is on a “slippery slope” and has in his view fatally compromised the system by bailing out bankrupt states in palpable violation of the Treaties.

“The Stability and Growth Pact has more or less failed. Market discipline is done away with by ECB interventions. So there is no fiscal control mechanism from markets or politics. This has all the elements to bring disaster for monetary union. “The no bail-out clause is violated every day,” he said, dismissing the European Court’s approval for bail-out measures as simple-minded and ideological. The ECB has “crossed the Rubicon” and is now in an untenable position, trying to reconcile conflicting roles as banking regulator, Troika enforcer in rescue missions, and agent of monetary policy. Its own financial integrity is increasingly in jeopardy. The central bank already holds over €1 trillion of bonds bought at “artificially low” or negative yields, implying huge paper losses once interest rates rise again.

[..] “During the first eight years, unit labour costs in Portugal rose by 30pc versus Germany. In the past, the escudo would have devalued by 30pc, and things more or less would be back to where they were.” “Quite a few countries – including Ireland, Italy and Greece – behaved as though they could still devalue their currencies,” he said. The elemental problem is that once a high-debt state has lost 30pc in competitiveness within a fixed exchange system, it is almost impossible to claw back the ground in the sort of deflationary world we face today. It has become a trap. The whole eurozone structure has acquired a contractionary bias. The deflation is now self-fulling. Prof Issing’s purist German ideology has no compelling answer to this.

Ah! Happy days!

• Let The Pound Fall and The Economy Rise (G.)

It has been just like old times. The pound has been falling on the foreign exchanges and, like a patient in intensive care, there are daily bulletins about its health. Charts show that when adjusted for different patterns of trade down the ages it is at its lowest for 168 years. If you have been gouged by a foreign exchange desk at Heathrow airport, this is a bad thing. If you consider sterling to be a symbol of national virility, it is a bad thing. If you think that the future for the UK outside the European Union is unremittingly bleak, it is definitely a very bad thing. But put the Brexit vote to one side for a second and ask yourself the following questions:

Is the economy currently unbalanced? Is growth too dependent on consumer spending and asset price bubbles? Is the productive base of the economy too small? Is it a problem that the UK is running a balance of payments deficit worth 6% of GDP, bigger than ever before in peacetime? If your answer to these four questions is yes – as it should be – then you need to accept that there is an upside to the falling pound. Indeed, many of those who are now talking about a sterling crisis were last year bemoaning the fact that Greece – trapped as it was inside the eurozone – did not have the benefit of a floating currency and so had to use a brutal internal devaluation involving wage cuts, pension reductions and welfare retrenchment to restore its competitiveness.

[..] Britain has discovered a way of living beyond its means. Assets are sold to overseas buyers bringing capital into the country to offset the balance of payments deficit. It is the equivalent of a once well-to-do household that has fallen on hard times pawning the silver to keep up appearances. At some point, referendum or no referendum, the financial markets were going to say enough is enough and it is delusional to think otherwise. Running permanent balance of payment deficits amounts to borrowing growth from the future. Sooner or later, it has to be paid back and Brexit means it will be sooner. A weaker pound works by making exports cheaper and imports dearer.

The effect, as after all the other devaluations and depreciations of the past 100 years – 1931, 1949, 1967, 1976, 1992 and 2007 – will make the economy less dependent on consumers and more reliant on producers. Lord Mervyn King, a former governor of the Bank of England, thinks the latest fall in sterling is a good thing and he is right. There have been suggestions from some in the remain camp that the hollowing out of manufacturing will make it impossible to gain any benefit from the cheaper pound. This, frankly, is nonsense. The current account deficit will shrink as a result of stronger exports from the manufacturing and service sectors, the boost provided to the tourism industry, and because cheaper domestic goods and services will be substituted for more expensive imports. To say that dearer imports will make life more difficult for consumers is to miss the point. That’s how rebalancing works.

“..just two years after the UK similarly rejected the gold standard back in 1931 there were just 12 remaining members versus the 45 that had previously been committed.”

• Europe’s Dramatic Fulcrum Point: Only Precedent Is 1930s (Hugh Hendry)

Since the Brexit referendum we have been developing our thoughts about what the Leave vote might mean, not just for the UK, but for the European project as a whole. An our main conclusion is that by doing the unthinkable and actually voting to leave, Brexit substantially increases the likelihood that other members of the European Union will also seek to break away. Remember, just two years after the UK similarly rejected the gold standard back in 1931 there were just 12 remaining members versus the 45 that had previously been committed. And the so far robust performance of the UK economy since the vote will do little to dissuade others from following suit.

So we have the precedent from a much earlier time (the 1930s) when the defection of just one member from a currency union caused the system to unwind rapidly. And we can clearly sense the seeds of another popular political revolt in other member countries; a flurry of upcoming elections and referendums provides an immediate catalyst. First of all we have the still too close to call US presidential election where a Trump victory would be hailed as a triumph for the same arguments that led to Brexit. Closer to home there is the Italian referendum on constitutional reform set for the first week in December, where it looks increasingly likely the government will be defeated.

Such a defeat would likely force Prime Minister Renzi to step down, potentially allowing populist parties to step into the resulting political vacuum and push a more nationalist agenda. 2017 is a big year for elections on the continent. In France both major parties have yet to decide on who will represent them in next year’s elections. But regardless of who the parties choose to run, both are likely to be pulled towards the distinctly anti-European nationalist agenda of Marine Le Pen who seems almost assured of reaching the second round run-off in the Presidential election next May.

And I kid you not, some people will still fail to see where Brexit came from.

• 43% of Britons and 73% of Londoners Live in Substandard Homes (Ind.)

More than four in 10 homes in Britain are falling short of an acceptable standard to live in, according to an alarming new report from the housing charity Shelter. Britons were asked if their homes met a series of conditions which together make up what Shelter has dubbed the “Living Home Standard”, and 43% said their home failed the test. The charity said it came up with the new criteria for what constitutes an acceptable place to live in consultation with the public. From having an affordable rent to being free from mould, pests and safety hazards, the list sets a “not unreasonable” standard which all homes should be meeting, Shelter said. Yet despite working with thousands of cases every week where homes are not up to scratch, even Shelter was shocked by how far the country was falling short.

Nearly one in five homes failed the Living Home Standard based on a lack of decent conditions. Some didn’t have running hot and cold water, others were not structurally sound, and many had serious pest infestations or issues with mould and damp. The research, conducted by Ipsos Mori, found more than one in four of the nearly 2,000 surveyed said their homes failed basic standards of affordability. In these cases, people had to cut back on essentials like food and heating just to pay their rent or mortgage, or they were worried those payments could rise to a level they would no longer be able to afford. And one in 10 respondents failed the test due to instability, mostly renters on short term contracts worried they could be kicked out of their homes at short notice.

“At Shelter we see all these problems every single day through our services, we help thousands of people every week, but even then – 43% was higher than we imagined,” Anne Baxendale, Shelter’s campaign chief, told The Independent. The problem appears particularly pronounced in London, where a staggering 73% said their home failed the test on some level. “It is really shocking, and it is up and down the country. Yorkshire is least badly affected – and it’s still one in four [failing],” Ms Baxendale said. “It’s affects people living in every kind of home, and people of all ages, but particularly the young. This is the start out in life that we are giving young people.

Comedy: “..the group wants to set a legal precedent in the common law that prevents political leaders from lying to the public..”

• Crowd-Funded Legal Case Wants To See Politicians Jailed For Brexit Lies (Ind.)

A crowd-funded project to prosecute politicians for “lying” during the EU referendum campaign has raised over £175,000 and now wants to see dishonest politicians jailed, the project’s founder has told The Independent. Marcus J. Ball, who founded the Brexit Justice campaign, says his team of lawyers are now building a case to take politicians to court to be held accountable for “dishonest” claims about Brexit. He set up the group online following the EU referendum citing his frustration at what he feels were misleading claims from some politicians during the campaign. After appealing for donations, he received more than £145,000 for legal fees as well as a salary of £32,000 for him to lead the project full time. Speaking to The Independent, Mr Ball admitted the project is a “highly ambitious and difficult challenge”.

However, he believes it is essential to make politicians accountable for broken promises: “We need to end this bizarre relationship we have with politicians, they are not untouchable. They are not above the law.” The 27-year-old, from Norwich, says the group wants to “set a legal precedent in the common law that prevents political leaders from lying to the public in the future. We also want to challenge the legitimacy of Brexit by legally establishing that it resulted from criminal wrongdoing on both sides.” Mr Ball said he is unable to discuss at this stage which politicians he will be singling out as the focus of the legal action. He told The Independent: “Now our solicitors have to build the case and formally instruct barristers, including some formidable QCs”.

I don’t think too many people have signed up to my statement that globalization is over. But Germany leans there, even if it’s heavily dependent on exports.

• Rattled German CEOs Seek “Revival of Germany Inc.” (WS)

About 20 German industry chieftains, rattled by the hits German companies have recently taken, including Deutsche Bank and Volkswagen, spent Saturday and Sunday two weeks ago on the phone with each other. They were fretting about the future of Germany’s export-dependent industry and outlining solutions. Some of the participants have since talked to the German daily, Die Welt, which published its report on Sunday. Participants included Siemens CEO Joe Kaeser, BASF CEO Kurt Bock, Deutsche Bank CEO John Cryan, BDI (Association of German Industry) president Ulrich Grillo, and BDI General Manager Markus Kerber. How to protect key industries in Germany is also topic of a paper being worked on by the Economy Minister Sigmar Gabriel and his folks, the Welt reported.

They’re searching for “protective walls,” and are working on a “list of options for actions to protect key German industries.” Finance Minister Wolfgang Schäuble and Finance State Secretary Thomas Steffen are in on it. For months, top executives and politicians have been discussing the impact of foreign governments on the “pillars of the German economy.” The recent “re-nationalization” of economic policies in many countries, in parallel with the “destabilization of the world,” scares these managers. “We are in a new phase in global politics, in which many countries are reverting to their national interests, where globalization is being turned back,” Kerber explained. Other executives have used similar words in their confidential conversations. Everyone is looking for answers. Nothing has been decided. Solutions are being worked on “behind the scenes.” And it shows, the Welt said, that “protectionism is suddenly no longer a dirty word” in business and politics.

JP Morgan and Qatar want to save Italy’s banks. That should never be allowed.

• Will Italy Leave the EU? Follow the Money (BBG)

Will Italy follow the UK’s example and leave the EU? Far-fetched as it may seem, capital flows suggest that some people aren’t waiting to find out. To keep the euro area’s accounts in balance, Europe’s central banks track flows of money among the members of the currency union. If, for example, a depositor moves €100 from Italy to Germany, the Bank of Italy records a liability to the Eurosystem and the Bundesbank records a credit. If a central bank starts building up liabilities rapidly, that tends to be a sign of capital flight. Lately, Italy’s central bank has been building up a lot of liabilities to the Eurosystem.

As of the end of September, they stood at about €354 billion, up €118 billion from a year earlier – and up €78 billion since the end of May, before the U.K. voted to leave the EU. The outflow isn’t quite as large as during the sovereign-debt crisis of 2012, but it’s still significant. The main beneficiary seems to be Germany, which has seen its credits to the Eurosystem increase by €160 billion over the past year. Here’s a chart showing the cumulative six-month flows between Italy and Germany and the rest of the euro area:

Why the accelerating outflows from Italy? One explanation is that people are worried about the state of the country’s banks, which are suffering the consequences of bad lending, poor governance and a new euro-area oversight system that makes rescues difficult. Another is political: Italian PM Matteo Renzi has staked his fate on a December government-reform referendum that, if it goes against him, could strengthen opponents who want to force a vote on whether Italy should remain in the EU. In that context, it’s not surprising that some depositors prefer not to hold Italian euros, given the chance that they might eventually be converted into lira. Either way, the capital flight doesn’t speak well of confidence in the European project – something EU leaders will have to keep in mind as they negotiate the terms of Britain’s exit.

Empty threats.

• 15 Swiss Banks In Money Laundering ‘Red Zone’ (R.)

Roughly 15 Swiss banks are in a “red zone” of lenders particularly exposed to money laundering risks, the head of Swiss banking watchdog FINMA said in a newspaper interview published on Sunday. Swiss federal prosecutors last week said that they have opened criminal proceedings against Zurich-based Falcon Private Bank for alleged failure to prevent suspected money laundering linked to Malaysia’s scandal-tainted 1MDB fund. Falcon is the second Swiss bank, after BSI, to face a criminal investigation by Switzerland’s Office of the Attorney General over links to 1Malaysia Development Berhad (1MDB). The move is partly based on an investigation by FINMA, which has also opened proceedings against several other lenders.

“We have introduced a warning system in relation to money laundering risks,” FINMA Chief Executive Mark Branson said in an interview with Swiss newspaper SonntagsZeitung. “Roughly 15 banks are in the red zone here. That means they are particularly exposed.” Branson did not name the banks concerned but said that most of them are involved in asset management and often have clients from emerging markets, adding that the lenders were from all areas of the country and of various sizes. Asked whether any major Swiss banks were among them, he said: “I would not use the plural, but yes.”

“To rebuild the loyalty of those who would continue to rule in the party’s name, its leaders went on to create the conditions in which officials at all levels could loot state property.”

• China’s Crony Capitalism: The Dynamics of Regime Decay (Econ.)

In 1989 the movement for democracy brought the Chinese Communist Party to within days of extinction. According to official reports, on one day alone, May 22nd, 6m people joined demonstrations in 132 cities across the country. The party’s immediate response was to use the people’s army to crush the people by force, in Tiananmen Square. To rebuild the loyalty of those who would continue to rule in the party’s name, its leaders went on to create the conditions in which officials at all levels could loot state property. Thus, the biggest democracy movement in history was countered by the greatest opportunity for predation the world has ever seen. China has never had a formal privatisation programme.

Instead, as Minxin Pei, a professor of government at Claremont McKenna College in California, writes in “China’s Crony Capitalism”, decentralising the rights of control over state property without clarifying the rights of ownership gave those who rule “maximum advantage to extract wealth from society”. Rights of control have been separated from rights of ownership in China—and where ownership is uncertain, control is key. Mr Pei’s book is quietly devastating. In sober, restrained language, he exposes the full gravity of corruption in China. Presenting a wealth of evidence, he shows that this is not the unfortunate by-product of rapid economic growth but the result of strategic choices by the party. With clinical precision, Mr Pei explains how corruption operates at every level, perverting each branch of the party-state and subverting the political authority of the regime.

The party cannot mitigate, let alone eradicate, “crony capitalism” because, since 1989, it has been “the very foundations of the regime’s monopoly of power”, the author argues. The conclusion, he believes, is that far from saving the regime, President Xi Jinping’s anti-corruption drive may accelerate its demise by creating divisions within the ruling elite even as it reinforces strong popular resentment of corruption. The state continues to hold the residual property rights to at least half of the net worth of the economy. Since 1978, when Deng Xiaoping launched his economic programme, the party-state has jealously guarded this walled garden for its officials and their business cronies. Throughout this time there has been some economic reform but no political reform. Thus the party, as Mr Pei points out, can only protect its interests with the full Leninist range of repressive instruments—and daily displays its willingness to do so.

Jeff fails to mention the chemical industry. But great graphics.

• The Oil Market is Bigger Than All Metal Markets Combined (VC)

Ever since the invention of the internal combustion engine, oil has been one of the most crucial commodities on Earth. Without it, modern transportation as we know it would not be possible. Industries such as aviation, aerospace, automobiles, shipping, and the military would look nothing like they do today. Of course, as we now know, this has all come with some extreme drawbacks from an environmental perspective. And while new green technology and the lithium revolution will aid in eventually reducing the role of oil in transportation, the fact is we still use 94 million barrels per day of crude worldwide.

As a result, the energy industry continues to have huge amounts of influence on our lives. Special interest groups with a focus on energy have influence on a domestic level. Meanwhile, from a foreign policy angle, countries like Saudi Arabia and Russia wield additional geopolitical and economic power because of their natural resources. It’s even arguable that everything from the Gulf War to the more recent Middle East interventions in Libya, Syria, and Iraq have been at least partially to do with oil. This week’s chart of the week aims to help explain the influence that oil has on countries and markets by using a very simple perspective: the size of the crude oil market vs. all metal markets combined.

Debt Rattle September 14 2016

Sep 142016

September 14, 2016 Posted by Raúl Ilargi Meijer at 9:24 am Finance Tagged with: Bageant, Brexit, EU, globalization, Hillary, Monsanto, NGO, oil, Parkinson's, refugees, Trump, yields 2 Responses »

LoC Old Patent Office model room, Washington DC 1865

• The US Consumer Will Cause The Next Crisis (Vallee)

• Shares Crumble As Oil Falls, Bond Yields Soar On Stimulus Doubts (R.)

• How ‘Zombie’ Oil Companies Stay Alive in Life-or-Death Debt Markets (BBG)

• Negative Rates May Do More Harm Than Good (BBG)

• Why Democrats in Western Pennsylvania Are Voting Trump (Atlantic)

• How Much It ‘Costs’ To Get An Ambassadorship (ZH)

• Buffett Loses $1.4 Billion as Wells Fargo Tumbles on Scandal (BBG)

• Hanjin Brings One of World’s Busiest Shipping Terminals to Near Standstill (BBG)

• IMF’s Lagarde Slams Globalization (ZH)

• Bayer To Announce Acquisition Of Monsanto On Wednesday (R.)

• Hillary’s 9/11 “Medical Episode” Looks More Like Parkinson’s Than Pneumonia (ZH)

• An ‘Amicable Divorce’ For The Eurozone? (Varoufakis)

• Expel Hungary From EU For Hostility To Refugees, Says Luxembourg (G.)

• Greece Has Exposed The NGO Aid Community’s Failures (G.)

If you still need this spelled out, this is quite good. Lots of graphs too.

• The US Consumer Will Cause The Next Crisis (Vallee)

The market is materially mispricing the strength of the US consumer whose weakness will lead the US economy into a recession in Q117. The divergence is a result of the top 40% of earners who have accrued 84% of all new income and only 34% of new debt since 2013. This strength has driven headline sales figures and accounted for nearly all deleveraging since the financial crisis. That said, the market has extrapolated the health of top 40% to all consumers, as it corresponds to the current narrative of low unemployment and rising average hourly earnings leading to higher rates of consumption and balance sheet strength. Due to this misconception, we believe the market has overlooked the deterioration of lower and middle income households who have historically preceded the fall of the top. We see this disparity being corrected over the next 6-9 months, as a series of disappointing retail sales and consumption figures lead market participants to the realization that their thesis is imperfect.

Markets won’t get quiet again at least before November 8, and more likely 2017.

• Shares Crumble As Oil Falls, Bond Yields Soar On Stimulus Doubts (R.)

Asian stocks fell to fresh six-week lows on Wednesday and the greenback stood strong against a broad swathe of currencies including the Japanese yen as concerns grew about the fading impact of the world’s major central banks to stimulate growth. Losses in stock markets across Asia deepened as rising bond yields and soaring volatility forced investors to unwind positions. The MSCI’s broadest index of Asia-Pacific shares outside Japan slid 0.2%, extending its decline since late last week to 4.2%. Within the region, Japan’s Nikkei led losers with a 0.3% decline as uncertainty grew ahead of a central bank policy meeting next week. The BOJ plans to make its controversial negative interest rate policy the centerpiece of future monetary easing, promising to weigh further rate cuts as expansions to asset buying near their limits, the Nikkei newspaper reported on Wednesday.

“The moves in developed market fixed-income, which are largely behind the volatility, have stemmed from Japan and the potential changes in monetary policy,” said Chris Weston at IG Markets. “Secondly, some of the biggest systematic funds have had to alter their portfolios. The rest of the market participants have had to simply react.” Stock markets have come under pressure as investors cut positions after large inflows in recent weeks betting on a long period of low volatility and suppressed bond yields. Inflows into emerging market equity funds amounted to $24 billion dollars over the past 10 weeks, the highest on record according to Bank of America Merrill Lynch flow data. An index of market volatility soared to its highest level in three months.

The refusal to restructure will come back to bite the US.

• How ‘Zombie’ Oil Companies Stay Alive in Life-or-Death Debt Markets (BBG)

Beneath the surge in corporate defaults lies a surge in distressed exchanges. Such exchanges – defined by Moody’s as when a troubled company offers its lenders new or restructured debt, securities, cash, or other assets, that amount to a smaller commitment than the original IOU – could have big implications for debt markets as they stretch out the current credit cycle and result in even greater losses for investors. The trend is most apparent in the energy sector where oil and gas companies have been deploying a raft of creative measures to stay afloat amid lower crude prices that have crimped profits and threatened their survival. Such measures have included swapping unsecured debt for secured, offering discounted buybacks of existing debt, or junior-lien debt that gets paid after other creditors.

“While these [distressed exchanges] do result in some level of loss to bondholders, unlike missed payments and bankruptcy filings the bonds typically remain eligible for inclusion in the high-yield index,” Kai Gilkes and Anneli Lefranc, analysts at CreditSights, wrote in new research. They note that the 12-month default rate rose to 7.2% for U.S. junk-rated bonds in August. That’s an increase of 30 basis points compared to July’s default rate of 6.9%, spurred on by six corporate defaults last months – including a trio of U.S. energy companies. “Distressed exchanges have contributed greatly to the rise in default rates,” they add, with 38 of the 75 U.S. high-yield defaults over the last 12 months coming from such deals. The degree to which distressed exchanges are propelling defaults higher is apparent in the below CreditSights chart, which shows the U.S. and European default rate excluding the swaps.

The question now will be whether such exchanges actually help companies improve their balance sheets and reduce their debt long enough to enjoy a recovery in oil prices or the market’s appetite for energy-related assets. If they don’t, then truly troubled companies will only have succeeded in putting off the inevitable and their lenders risk suffering greater losses further down the line.

You think? Again, there’s one solution only: take away central banks’ powers.

• Negative Rates May Do More Harm Than Good (BBG)

The negative interest rate strategy that Japan and Europe’s central banks have embraced may do more harm than good, according to John Taylor, the creator of an eponymous rule for guiding monetary policy. “What we are learning is that, in my view, negative rates may not have helped and may have hurt,” Taylor, a professor at Stanford University in California, said in a telephone interview this week. “It could be counterproductive, no question.” A potential problem is that the strategy of charging banks for a portion of their reserves squeezes the availability of credit. Bank of Japan Governor Haruhiko Kuroda last week rejected the idea that the negative-rate policy adopted in January had hurt banks’ “intermediary functions” – their ability to channel savings to lending.

Even so, he acknowledged that the move had spurred a powerful drop in long-term yields. That, in turn, hurt earnings on savings including pensions, generating some risk for the “sustainability of the financial function in a broad sense.” “The macro models we have don’t really incorporate that financial-sector behavior, so it’s hard to give a magnitude to it,” Taylor said. While some companies may boost investment, others could pare it back, and saving rates could be affected, said Taylor, who served as the U.S. Treasury’s top international official from 2001 to 2005.

Joe Bageant meets Brexit. Excellent from the Atlantic. Nothing learned from Project Fear that helped shape Brexit.

• Why Democrats in Western Pennsylvania Are Voting Trump (Atlantic)

Lee Supply is a third-generation family-owned business, operating since 1954. “My dad started it servicing the coal industry,” Lee said. Nestled in a glen between the rolling hills of the Alleghenies and the Monongahela River, the company bustles with workers moving about the plant. Today, it sells pipe and pumping systems used in everything from traditional applications, such as water distribution and sewage treatment, to highly specialized applications such as horizontal directional drilling, slip lining, leachate and methane collection, gas extraction, and water transport. One man wearing a florescent-yellow Lee Supply safety shirt, with grease smudged on his arms and face, registered to vote for the first time in his 61 years.

His eyes watered as he put down the pen. “This is about me,” he said, declining to give his name. “I am doing this for me, my hometown.” “Sheik” Shannon, 55, a 17-year employee at the company, believes the political class fundamentally misunderstands what this election cycle is all about. “They think it is the celebrity of Trump. It’s not. They think we’ve all gone mad. We’ve not,” he said, emphasizing each sentence with passion. “Communities like where I live do not need to shutter and die. We lead solid, honest lives, we work hard, we play hard, we pray hard … we love where we are from, and we feel a duty to make sure that it is here for generations.” Paul Sracic, a Youngstown State University political scientist, believes there are two categories of voters rallying to support Trump.

“First, there are people who don’t normally vote,” he said. “Nearly half the voting-age population was either not registered to vote, or was registered and decided not to vote in 2012. And if even 10% of that group was to show up and vote this year, it could easily change the outcome in the important swing states.” Sracic—who frankly admits he obsesses over opinion polls—wonders whether these voters are even represented in the endless presidential surveys: “If people aren’t registered voters, they won’t be picked up by most polls. If they are registered voters but don’t normally vote, they may be eliminated by ‘likely voter’ screens pollsters use.” Romney lost Pennsylvania in 2012 by about 300,000 votes out of about 5.5 million cast; in Ohio, he lost by less than 200,000. “So bringing new people in can make a difference,” Sracic said.

Potentially more significant, however, are those voters who “flip”—Sracic’s second category. “Remember,” he said, “taking a Democratic voter and having them vote Republican is both a +1 and a -1. In other words, if Romney lost Pennsylvania by 300,000 voters, all you have to do [this time] is flip slightly more than 150,000 votes.” Between Ohio and Pennsylvania, if approximately 225,000 voters (out of the 11 million who are expected on Election Day) switch parties, they could tip the entire election.

For names, amounts and photos click the link.

• How Much It ‘Costs’ To Get An Ambassadorship (ZH)

After addressing a cybersecuirty conference in London, notorious hacker ‘Guccifer’ shared over 500Mb of documents detailing 100,000 DNC donors contact info and donations. A large number of the largest donors received senior diplomatic or political positions following thge donations, ranging from UK Ambassador to Assistant Attorney General. The DNC released a statement pre-emptively claiming that this was the work of Russia (and reigniting Trump’s links to Putin). Probably just coincidence… The dcoments contained detailed lists of 100,000 alledged donors, addresses, and phone numbers, and well as amounts donated…

[..] The DNC responded to the latest hack claim Tuesday through its Interim Chair Donna Brazile, who stated that the “DNC is the victim of a crime,” which she blamed on “Russian state-sponsored agents,” while also cautioning that the hacked documents were still being authenticated by the DNC legal team, as “it is common for Russian hackers to forge documents.” DNC pre-emptively published a statement in an attempt to change the narrative… [..] Once again blaming Russia (and Trump)… As RT reports, it’s not the first time that the name of Vladimir Putin has been brought up in the US presidential campaign, but this time the US president used this “argument” while openly campaigning for Clinton against Trump. The situation has become “really ludicrous and it borders on the ridiculous,” believes Gregory R. Copley, editor of Defense & Foreign Affairs.

“In my 50 odd years covering the US government, I have never seen this level of partisanship within the administration where a sitting president actually regards the opposition party as the enemy of the state,” Copley told RT. [..] The US establishment is “sacrificing key bilateral relationships in order to win [a] domestic election,” believes Copley. He added that neither Obama nor Clinton are interested in unifying the country, but they are rather “interested in winning and engaging in what modern democracy seems to have become – the tyranny of the marginal majority over the marginal minority.”

“When you think about the number of times that the Clinton campaign has brought up President Putin and the alleged Russian hacking of Hillary Clinton’s service, it makes you wonder just how desperate they are,” Copley noted. “President Obama has lost literally all prestige in an international community…with the loss of prestige he has become desperate.”

Is there anything more boring in the world than billionaires?

• Buffett Loses $1.4 Billion as Wells Fargo Tumbles on Scandal (BBG)

Warren Buffett had $1.4 billion wiped from his fortune Tuesday after Wells Fargo fell 3.3% as the fallout continued from revelations that bank employees had opened more than 2 million accounts without clients’ approval. Berkshire Hathaway, the lender’s biggest shareholder, fell 2%, causing the 86-year-old’s fortune to drop more than anyone else’s on the Bloomberg Billionaires Index. The U.S. investor is the world’s fourth-richest person with a net worth of $65.8 billion. Tuesday’s decline came amid a global equity sell off that has wiped out $93 billion from the world’s 400 biggest fortunes since Friday. The billionaires shed $37.3 billion Tuesday as stocks and bonds both slumped, and oil sank after the IEA’s prediction that a glut will extend into next year.

The world’s second-richest person, Inditex founder Amancio Ortega, leads the 400 richest people with a decline of $3.3 billion since the sell off began, according to the index. Microsoft co-founder Bill Gates, the world’s richest person with $87.3 billion, has lost $2.4 billion. Amazon founder Jeff Bezos, the world’s third-richest person with $66.2 billion, has shed $1.9 billion. Buffett, whose fortune is mostly in Berkshire shares, has lost $1.6 billion in the sell off. Wells Fargo was overtaken by JPMorgan as the world’s most valuable bank on Tuesday. It has fallen 5.9% since Thursday, when the Consumer Financial Protection Bureau announced fines stemming from the fake accounts. The drop since Thursday compares with a 2.5% fall for the Standard & Poor’s 500 Index.

Good example of why systems need redundancy, but don’t have it.

• Hanjin Brings One of World’s Busiest Shipping Terminals to Near Standstill (BBG)

The Hanjin Shipping Co. terminal at South Korea’s largest port used to be one of the world’s busiest. Dozens of container carriers would line up to ferry boxes to and from the giant cranes that loaded and unloaded the world’s biggest ships.
Last week the terminal, as big as 100 football fields, came to a virtual standstill. In front of hundreds of containers stacked four-high, Seo Seong Deok, a 35-year-old driver of the port tractors, wondered if he would ever get to move them again. “We have no work now,” said Seo, one of about 1,000 tractor drivers without work. “This Hanjin terminal used to be always bustling with trucks and ships. Now, I heard some fresh food such as mango or banana is rotting in Hanjin container ships drifting somewhere in the ocean.”

Since the world’s seventh-largest container line filed for protection from creditors on Aug. 31, the port has been paralyzed as unshipped boxes piled up. The collapse has come at the worst time: September is peak season for the industry as manufacturers look to stock store shelves for holidays like Thanksgiving and Christmas. Port officials say cargo owners have been scrambling to find alternative ways to send goods. The port in Busan, on the tip of the Korean peninsula about 200 miles southeast of Seoul, handles more than 70% of the containers that enter or leave South Korea, according to local government data. Until last week, Hanjin alone accounted for about 10% of goods that flow through its wharves. “The biggest concern is Busan losing its longtime reputation as a maritime hub in Asia,” said Kim Kyu-Ok, the city’s vice mayor for economic affairs. Hanjin’s collapse “could make ship owners shun Busan.”

A good take from Tyler: turn Christine on her head.

• IMF’s Lagarde Slams Globalization (ZH)

Two months after consultancy giant McKinsey dramatically flip-flopped on its long held position of praising globalization, cautioning that – as Britain’s vote to exit the European Union exemplified what happens when people feel like the system is letting them down – the system is on the verge of “explosion”, comparing the buildup of resentment over globalization to a dangerous natural gas leak in a row of houses, today it was the IMF’s turn. In a speech titled “Making Globalisation Work For All”, IMF managing director Chrstine Lagarde became the latest in a growing chorus of senior policymakers urging governments to take heed of rising discontent and economic insecurity in the advanced world.

Lagarde said that governments in the developed world should focus their attention on boosting support for low income workers and reducing inequality, amid a “groundswell of discontent” against globalisation. Effectively reiterating the McKinsey report, Lagarde said that there is “a growing sense among some citizens that they “lack control,” that the system is somehow against them”, a system which she now slams, even though the IMF been instrumental in helping create and grow precisely this system ever since its inception, saying that “growing inequality in wealth, income, and opportunity in many countries has added to a groundswell of discontent, especially in the industrialized world.” She then slammed both banks, tax regimes and pervasive corruption, saying that “financial institutions are being seen as unaccountable to society. Tax systems allow multinational companies and wealthy individuals not to pay what many would consider a fair share. Corruption remains endemic.”

Last but not least she warned about the “challenge” from migration flows: And there is the challenge from uncontrolled migration flows, contributing to economic and cultural anxieties.” To be sure, Lagarde did have some kinds words for globalisation, highlighting the opening up of world trade and the entry of the likes of China and India into the global economy, which has had “far reaching effects” for low-income workers in the likes of Europe and the US, however even here she highlighted the negatives saying that “the size of the global workforce effectively doubled, putting downward pressure on wages, especially for lower-skilled workers in advanced economies…. Some local labour markets that have faced deep, long-lasting effects from overseas competition.” We are confident this is a bullet point that Trump will be delighted to use during the upcoming debates.

This is very dangerous. We should not allow it.

• Bayer To Announce Acquisition Of Monsanto On Wednesday (R.)

Chemicals and healthcare group Bayer is poised to announce the acquisition of U.S. seeds company Monsanto on Wednesday for more than $66 billion, clinching the biggest deal of the year, people familiar with the matter said. By accepting Bayer’s offer, the largest cash acquisition proposal on record, Monsanto is set to give the German company a shot at grabbing the top spot in the fast-consolidating farm supplies industry, combining its crop science business with Monsanto’s strength in seeds. It will also set the stage for the deal to be closely scrutinized by antitrust regulators. The breakthrough in negotiations, which follows more than four months of talks, came after Bayer further improved on the sweetened offer of $127.50 per share in cash it disclosed last week, the people said.

However, the deal will still value Monsanto at less than $130 per share, which the company was previously hoping to fetch, the people added. Once Monsanto’s board of directors approves the deal on Tuesday, Bayer’s supervisory board will meet on Wednesday to also authorize the transaction, with an announcement expected before the stock market opens in New York on Wednesday. It is still possible the board of either company could decide to walk away from the deal at the last minute, the people cautioned. Bayer’s bid to combine its crop chemicals business, the world’s second-largest after Syngenta, with Monsanto’s industry leading seeds business, is the latest in a series of major consolidation moves in the agrochemical sector. U.S. chemicals giants Dow Chemical and DuPont have agreed to merge and spin off their respective seeds and crop chemicals operations into a major agribusiness.

I don’t want to get into this too much, but the good doctor makes a convincing case.

• Hillary’s 9/11 “Medical Episode” Looks More Like Parkinson’s Than Pneumonia (ZH)

A few weeks back, Dr. Ted Noel, an anesthesiologist with 36 years of experience, gained notoriety by sharing his opinion on his website, Vidzette, that Hillary likely had Parkinson’s disease. Now, Dr. Noel has posted a new video in which he explains how Hillary’s behavior on 9/11 and the subsequent decisions made by her campaign staff and secret service detail are more consistent with Parkinson’s disease than pneumonia. Among other things, Noel points out that if Hillary actually was suffering from such a severe case of pneumonia that it forced her to literally collapse on a sidewalk, it’s extremely unlikely that she could make a seemingly full recovery after only 90 minutes at Chelsea’s apartment and feel well enough to great onlookers and snap a selfie with a child.

Per Noel, Hillary’s recovery timing is more consistent with how long it would take her to ingest a dosage of Levodopa and wait for her Parkinson’s symptoms to subside. Noel also points out that sunglasses with dark blue lenses, like the ones Hillary wore this weekend despite the cloud cover, have been noted by doctors to help treat patients with major motion disorders such as Parkinson’s disease. With that preview, here is the full analysis

I’m looking at doing another article on the political restraints on an EU ‘redesign’. Wrote on that years ago, don’t know if I can find any of it back. Nothing much has changed, other than tensions have increased.

Yanis looks at the economic/financial side. I think I’m more convinced that a ‘divorce’ is inevitable than he is, ugly as it may be.

• An ‘Amicable Divorce’ For The Eurozone? (Varoufakis)

Stefano Fassina points out that in my article ‘Europe’s Left After Brexit’ I did not discuss his preferred option for Eurozone member-states: Stay in the EU but leave the euro. Of course the reason my article did not discuss that position is that it was focusing on Brexit and addressing Lexiteers like Tariq Ali and Stathis Kouvelakis who are arguing, from a left-wing position, for leaving the EU altogether – i.e. Brexit-like moves. But I am more than happy to comment on Stefano’s preferred option (In the EU, Out of the Euro) here. Stefano invokes Joe Stiglitz who, in his recent book on the euro, recommends an ‘amicable divorce’ that would lead to the creation of at least two new currencies (one for the deficit and one for the surplus countries).

Since I have recently discussed this with Joe Stiglitz it is perhaps useful to share the gist of our discussion with Stefano and our readers. In my email to Joe, I expressed scepticism that an ‘amicable divorce’ is at all possible. The moment it becomes public that a ‘divorce’ is under discussion, a wall of money will leave the banks of the countries destined for devaluation, heading for Frankfurt. At that point, the banks of the deficit member-states will collapse (as they run out of ECB-acceptable collateral) and the member-states will impose stringent currency and capital controls – complete with officials at airports checking suitcases and/or harsh limits in cash withdrawals. This would spell the end not only of monetary union but also of (the already injured) Schengen Treaty.

Meanwhile, as bank deposits are being redenominated, huge assets belonging to the Bundesbank and the central banks of other surplus countries (e.g. the Netherlands), which are the liabilities of the deficit countries, will disappear, causing an uproar of indignation in Germany and the Netherlands. Under such circumstances, and given the already advanced stage of the EU’s disintegration, it is almost certain that the dissolution of the Eurozone will be anything but amicable. Joe Stiglitz responded to me thus: “You are absolutely right that the moment any country contemplated leaving, capital controls would have to be imposed… The rush out will occur presumably before–when a party advocating a referendum looks like it might win.

So the hard decisions about imposing capital controls are likely to be faced ironically by a pro-Euro government. If it delays, by the time the election occurs, the country may be in shambles. The picture ahead for Europe is not a pretty one.” In conclusion, it is a fantasy to think that the EU can oversee an amicable disintegration of the Eurozone. Indeed, it is hard to imagine the EU surviving a Eurozone breakdown.

Yeah, about that EU divorce…

• Expel Hungary From EU For Hostility To Refugees, Says Luxembourg (G.)

Luxembourg’s foreign minister has called for Hungary to be thrown out of the EU over its increasingly hostile approach to refugees, as campaigners accuse Viktor Orbán’s hardline government of whipping up xenophobia to block a European plan to relocate asylum seekers. Jean Asselborn said Hungary should be temporarily or even permanently expelled from the EU for treating asylum seekers “worse than wild animals”. In an interview with German daily Die Welt, he said: “Anyone who, like Hungary, builds fences against refugees from war or who violates press freedom and judicial independence should be excluded temporarily, or if necessary for ever, from the EU.”

Asselborn called for EU rules to be changed to make it easier to expel Hungary as this was “the only way of preserving the cohesion and values of the EU”. Hungary’s foreign affairs and trade minister Péter Szijjártó dismissed Asselborn as “an intellectual lightweight” and his comments as “sermonising, pompous and frustrated”. He said only Hungarians have the right to decide who they wish to live with, adding that no Brussels bureaucrat can deprive them of this right. In a statement issued by the Hungarian government, Szijjártó added: “It is somewhat curious that Jean Asselborn and Jean-Claude Juncker – who both come from the country of tax optimisation – speak about jointly sharing burdens. But we understand what this really means: Hungary should take on the burden created by the mistakes of others.”

This is what I have observed in Greecem, and why I support Konstantinos so strongly. His is the much better model for aid, not the massive overhead NGO one. But they get the millions, and he gets nothing, except from the Automatic Earth and a few minor other sources. NGOs have become corporations entrenched in a system that’s as expensive as it is a failure. And guess who the victims of this failure are?

• Greece Has Exposed The NGO Aid Community’s Failures (G.)

The aid community has over many years developed a habit of finding reasons for why the school was not built in the Afghan village, why the women’s agricultural businesses never made any profits, why the toilets took three months to set up in the refugee camp. When it comes to our shortcomings, we have become very comfortable with, and rely upon the shopping list of excuses that we find ourselves using in Haiti, Afghanistan, Iraq, the Democratic Republic of Congo and the other contexts we’re flown into. The humanitarian excuses list includes, but is not limited to: a fragile context, ongoing war and conflict, poor infrastructure, a corrupt government, dictatorship (current or past), insufficient funding, and values that are not akin to our own.

Or if all else fails, that other favourite go-to, the overwhelming scale and number of people, such as the 1,033,513 registered Syrian refugees in Lebanon, 655,990 Syrian refugees in Jordan or 3.9 million internally displaced people in Iraq. But in Greece we are without the humanitarian excuse list to fall back on. The aid community has already received €83m to improve conditions for refugees in Greece with €214m to come from the European Commission alone in the next few months. This makes it hard to suggest we are underfunded, especially when you look at the scale of the crisis. At the time of writing, the number of refugees in Greece is approximately 60,000. The problem is not overwhelming. This time we are in an EU country.

I feel safe wherever I am – this means I can conduct a visit to monitor the impact of a programme or ensure I am consulting refugees about what they want. But I don’t, because it is something we have talked about but not done for many years, and there is little pressure to change. The disconnect between the sector’s standards and the reality on the ground is more stark here than in any other mission I’ve been involved in. We have historically been unaccountable, failing to sufficiently consult and engage affected communities. In Greece we are continuing to operate in the same ways as before, but without the traditional excuses to rely on.

Across Greece there are volunteers working both independently and as organised groups, meeting needs and filling gaps. They take over abandoned buildings to ensure refugees have somewhere to sleep, provide additional nutrition to pregnant and breastfeeding women, organise and manage informal education programmes, including setting up schools inside camps. All of this while INGO staff sip their cappuccinos in countless coordination meetings – for cash distribution, protection, water, sanitation and hygiene, food distribution and child-protection.