happiness Archives - The Automatic Earth

The EU is preparing punitive tariffs on iconic U.S. brands produced in key Republican constituencies, raising political pressure on President Donald Trump to ditch his plans for taxing steel and aluminum imports. Targeting $3.5 billion of American goods, the EU aims to apply a 25 percent tit-for-tat levy on a range of consumer, agricultural and steel products imported from the U.S. if Trump follows through on his tariff threat, according to a list drawn up by the European Commission and obtained by Bloomberg News. The list of targeted U.S. goods – including motorcycles, jeans and bourbon whiskey – sends a political message to Washington about the potential domestic economic costs of making good on the president’s threat.

Paul Ryan, Republican speaker of the House of Representatives, comes from the same state – Wisconsin – where motorbike maker Harley-Davidson is based. Earlier this week, Ryan said he was “extremely worried about the consequences of a trade war” and urged Trump to drop his tariff proposal. Other U.S. officials will also feel the pressure. Bourbon whiskey hails from Senate Majority Leader Mitch McConnell’s home state of Kentucky. San Francisco-based jeans maker Levi Strauss is headquartered in House Minority Leader Nancy Pelosi’s district. The EU’s retaliatory list targets imports from the U.S. of shirts, jeans, cosmetics, other consumer goods, motorbikes and pleasure boats worth around €1 billion; orange juice, bourbon whiskey, corn and other agricultural products totaling €951 million; and steel and other industrial products valued at €854 million.

Tariff on US cars exported to Europe is 25%. Tariff on EU cars imported in US is 10%. Looks like there is room for talks there.

• Trump’s Tariff Threat On European Cars Could Spell Big Trouble For Germany (CNBC)

The war of words between President Donald Trump and the EU could lead to some serious pressure on the German auto industry, one expert told CNBC. Trump threatened via Twitter on Saturday to hit back at any tariff measures from the European Union — floated in response to Trump’s recently announced global steel import tariffs — in kind. The billionaire businessman’s potential next target? European cars. And the biggest victim of them all may be Germany. “It would be quite severe if we were to face additional import duties to ship the cars into the U.S. — the Germans in particular are very, very exposed,” Arndt Ellinghorst, the head of global automotive research for advisory firm Evercore ISI, told CNBC Monday.

He noted the example of BMW, which sells about 350,000 cars in the U.S. annually, roughly 70% of which come from Europe. “That’s probably an $8 billion to $9 billion revenue stream, if you put a 5 to 10% additional cost on it, it would cost something like $400 million to $800 million. Some of that would be absorbed by the company, and some of it would have to be absorbed by the consumer in the U.S.” Ellinghorst did add that cars being shipped from the U.S. into Europe faced a 10% import duty while European cars into the U.S. faced a 2.5% import duty. “I think what the administration is talking about is to balance out this difference in tariffs to make it more of an equal playing ground for American and European carmakers,” he said.

Out of roughly six million cars exported by Europe in 2016, more than one million were absorbed by the U.S. — just over 16% — its largest country market by a wide margin. Meanwhile, of America’s $53.6 billion in car exports that same year, the value of its car exports into Europe was $11.8 billion, or roughly 22% of the total, according to the Observatory of Economic Complexity. The U.S. is the third-largest car exporter globally after Germany and Japan, accounting for 7.7% of total world exports. It ran a trade deficit of more than $151 billion overall with Europe in 2017.

The aftermath of the reurn of volatility.

• Retail Investor Bullishness Collapses (WS)

TD Ameritrade’s Investor Movement Index – “designed to indicate the sentiment of retail investors” based on what they’re doing in their accounts and “how they are actually positioned in the markets” – plunged 23% in February to 5.95, the biggest month-over-month plunge in the history of the index, “as volatility returned to the market.” This comes after a 9% plunge of the index in January, the largest month-over-month plunge in three years, which occurred despite the final spurt of the rally that took the stock market indices to new highs on January 26. It’s as if retail investors, for once, smelled a rat. After which the sell-off started:

TDA Chief Market Strategist JJ Kinahan explained in an interview that TDA’s clients “didn’t want to be as exposed” in February to risk “as they were.” “What’s interesting is they were net buyers, and they were net buyers because of the February 9th move,” he said. “They bought a lot of stocks that day. But as the month went on, they just continued to sell those stocks back out, and then some. So it was a really interesting pattern that developed.” The stocks they bought had “lower beta than some of the stocks they sold,” he said. “So it was really and truly a risk-off trade. But the bigger part about it is they lightened up their exposure across the board. So one or two days truly of buying,… but after that, not only selling what they’d bought that day, but selling on top of it what they’d bought earlier” this year and last year.

Hard to gauge how much of a grip the Financial Stability Board has on the actual numbers. 2016 is the first time they include China. But what do they actually know, and how much is guesswork?

• World’s ‘Shadow Banks’ Continue To Expand (R.)

Growth in global bond, real estate and money market funds continued to swell the world’s“shadow banking” sector, a watchdog that coordinates financial regulation for the G20 big economies said on Monday. The Financial Stability Board said its“narrow” measure of shadow banking activities that could pose a threat to stability, rose 7.6% to $45.2 trillion in 2016, the latest year for which figures have been collated. It represents 13% of total financial system assets in the 29 jurisdictions surveyed. Data from China and Luxembourg were included in the measure for the first time. “Non-bank financing provides a valuable alternative to bank financing and helps support real economic activity,” the FSB said in its report. Nevertheless, increased reliance on non-bank funding could give rise to new risks, it said.

The so-called shadow banking sector, made up of companies other than banks that provide financial services, has been treated with suspicion by some regulators since the financial crisis a decade ago. Still, it has some champions among policymakers who say it helps keep capital markets more liquid. The European Union actively courts participants to diversify away from heavy reliance on bank loans for EU companies. Apart from debt investment funds, the measure of shadow banking also includes the repurchase and debt securitization markets as well as hedge funds involved in credit. Faced with few rules in the past, sub-sectors like securitization are now regulated and seen to pose less risk to stability.

Open-ended bond funds, hedge funds that offer credit and money market funds account for 72% of the narrow measure, and grew by 11% in 2016. Regulators have asked funds to have safeguards in place for extreme market turbulence to avoid instability from fire sales of assets if many investors ask for their money back. The United States accounts for 31% of the narrow measure, followed by China with 16%, the Cayman Islands at 10% and Japan at 6%. A broader measure, which includes all financial firms that are not central banks, banks, pension funds or insurers, rose 8% to $99 trillion to represent 30% of global financial assets, its highest level since at least 2002, the FSB said.

How transparent are these shadows?

• China to Ease Bad-Loan Provision Rules to Support Growth (BBG)

China is relaxing rules governing how much banks must set aside to cover bad loans, people with knowledge of the matter said, a sign that regulators are comfortable the nation’s lenders are sound enough to extend additional credit and support the economy. The China Banking Regulatory Commission has issued a notice lowering the bad-loan coverage ratio to a minimum 120% from the previous 150%, the people said, asking not to be identified as the matter isn’t public. Relaxed bad-loan coverage rules will allow banks to extend more credit, supporting an economy the government expects to expand about 6.5% this year, a slower pace than in 2017. Additional lending from giants such as Industrial & Commercial Bank of China would also counter some of the effects on the economy of President Xi Jinping’s campaign to curb financial risk, one of the government’s top priorities.

The changes also indicate regulators are confident that they’ve come to grips with a bad-loan epidemic that plagued lenders over the past few years. In 2016, when problem loans at Chinese banks were on the rise, the CBRC resisted lobbying from the nation’s lenders to relax the provisioning thresholds. The timing of the CBRC move suggests that “nonperforming loans are not a problem,” analysts at Shenwan Hongyuan said in a research note. [..] According to the notice, the CBRC will differentiate the amount of provisions an individual bank must hold within the new band of 120% to 150%, based on the level of its capital, the accuracy of its loan classification policies and its proactiveness in handling nonperforming loans, the people said.

China’s banking industry has a bad loan coverage ratio above 180%, CBRC official Xiao Yuanqi said at a briefing last week, indicating banks have plenty of room to reduce provisions. As well as lowering the threshold, the CBRC notice said it will reduce the amount of provisions banks must hold against their total loan book, including healthy loans, to as low as 1.5% from the previous 2.5% minimum.

They can’t have it all.

• China Faces an ‘Impossible Challenge’ on Budget, Tax and GDP (BBG)

Premier Li Keqiang has an “impossible challenge” if he wants to slash China’s budget deficit target, deleverage the economy, and cut taxes, according to Pantheon Macroeconomics. Li on Monday said this year’s deficit goal was cut to 2.6% of gross domestic product, from 3%, the first reduction since 2012. At the same time, he pledged tax cuts of 800 billion yuan ($126 billion) for companies and individuals and set a 6.5% annual economic growth target – the same as last year’s target but slower than the actual performance of 6.9%. “These targets suggest tight monetary conditions and tight fiscal policy, with GDP growth holding up, despite an intensified deleveraging campaign,” said chief Asia economist Freya Beamish in London. “Something’s got to give. We reckon it’s fiscal policy, though monetary policy could also turn out on the easier side, with the yuan also set to weaken.”

[..] While China is aiming for a narrower official deficit, leaders still plan to expand the issuance of special purpose bonds, which are sold by local governments to finance items that aren’t included in the general public budget and not counted in the deficit ratio released annually. Local governments have used special bonds to help pay for highways, railroads and other construction projects in recent years, and the securities are designed to be covered by returns of the projects rather than general revenues. Special purpose bond issuance will jump to 1.35 trillion yuan this year to prioritize “supporting ongoing local projects to see them make steady progress,” the Finance Ministry said Monday. That’s up from 800 billion yuan in 2017 and 400 billion yuan in 2016.

An entire series of companies guaranteeing each other’s debt. How does that surface in those shadow reports?

• China’s Coming Meltdown Will Rapidly Spread to US (Rickards)

The coming credit crisis in China is no secret. China has $1 trillion or more in bad debts waiting to explode. These bad debts permeate the economy. Some are incurred by Chinese provincial authorities trying to get around spending limitations imposed by Beijing. Some are straight commercial loans on bank balance sheets. Some are external dollar-denominated debts owed to foreign creditors. The most dangerous type of debt involves a daisy chain of insolvent corporations buying debt from each other. A single cash advance of $100 million can be passed from corporation to corporation in exchange for a new promissory note, used to extinguish an old unpayable promissory note. Repeated enough times, the $100 million can be used as window dressing to prop up $1 billion or even $2 billion of bad debts.

These kinds of accounting tricks will land you in jail in the U.S., but it’s an accepted practice in China as long as the corporate CEO is a “Princeling” (a politically connected Communist Party insider descended from the old guard) or an oligarch willing to pay bribes. This state of affairs has existed for years. The question investors keep asking is, “How long can this last?” How long can the daisy chain keep operating to gloss over a sea of bad debt and give the Chinese economy an appearance of good health? Well, the answer is the Ponzi will not likely last much longer. Even compliant Chinese regulators are starting to blow the whistle on bad loans and the banks that cover them up. So the good news is that China is starting to address the problem. The bad news is that if China gets serious about cleaning up bad debts, their growth will slow significantly and so will world economic growth.

That’s bad news for global stock markets. Essentially, China is on the horns of a dilemma with no good way out. On the one hand, China has driven growth for the past eight years with excessive credit, wasted infrastructure investment and Ponzi schemes like wealth management products (WMPs). The Chinese leadership knows this, but they had to keep the growth machine in high gear to create jobs for millions of migrants coming from the countryside to the city and to maintain jobs for the millions more already in the cities. The Communist Chinese leadership knew that a day of reckoning would come. The two ways to get rid of debt are deflation (which results in write-offs, bankruptcies and unemployment) or inflation (which results in theft of purchasing power, similar to a tax increase). Both alternatives are unacceptable to the Communists because they lack the political legitimacy to endure either unemployment or inflation. Either policy would cause social unrest and unleash revolutionary potential.

Americans can’t get away from the money makes you happy syndrome.

• Sex, Money & Happiness (Roberts)

“Sex” and “Money” are probably two of the most powerful words in the English language. First, those two words got you to look at this article. They also sell products, books, and services from “How To Have Better Sex” to “How To Make More Money” — ostensibly so you can have more of the former. Unfortunately, they are also the two primary causes of divorce in the country today. But “happiness,” is also an interesting word because it is ultimately derived from the ability to obtain money and the lifestyle with which it will afford. Researchers at Purdue University recently studied data culled from across the globe and found that “happiness” doesn’t rise indefinitely with income. In fact, there were cut-off points at which more annual income had a negative effect on overall life satisfaction.

So, what’s that number? In the U.S., $65,000 was found to be the optimal income for “feeling” happy. In the U.S., despite higher levels of low income (now there’s an oxymoron), inflation-adjusted median incomes have remained virtually stagnant since 1998.

However, the chart above is grossly misleading because the income gains have only occurred in the Top 20% of income earners. For the bottom 80%, they are well short of the incomes needed to obtain “happiness.”

For most American “families”, who have to balance their living standards to their income, the “experience” of “happiness” is more of a function of “meeting obligations” each and every month. Today, more than ever, the walk to the end of the driveway has become a dreaded thing as bills loom large in the dark crevices of the mailbox. If they can meet those obligations, they are “happy.” If not, not so much.

In my opinion, what the study failed to capture was the “change” in what was required to achieve “perceived” happiness following the “financial crisis.” Just as with “The Great Depression,” individuals forever altered their feelings about banks, saving and investing after an entire generation had lost “everything.” It is the same today as sluggish wage growth has failed to keep up with the cost of living which has forced an entire generation into debt just to make ends meet. As the chart below shows, while savings spiked during the financial crisis, the rising cost of living for the bottom 80% has outpaced the median level of “disposable income” for that same group. As a consequence, the inability to “save” has continued.

[..] Not surprisingly, the “financial stress” in American households is leading to other factors which are fueling the “demographic” problem in the future. The equation is very simple – when individuals are stressed over finances they are less active sexually. This was shown in a recent study by the National Bureau of Economic Research. Ahead of the past three US recessions, the number of conceptions began to fall at least six months before the economy started to contract. As the FT notes, while previous research has shown how birth rates track economic cycles, the scientific study is the first to show that fertility declines are a leading indicator of recessions. [..] To the researchers’ surprise, they found that falls in conceptions were a far better leading indicator of recessions than many commonly used indicators such as consumer confidence, measures of uncertainty, and purchases of big-ticket items such as washing machines and cars.

Sheer incompetence. Much more of that to come.

• British Can’t Deliver Promises Of Frictionless Trade (Fintan O’Toole)

In 2016, more than 310 million people and nearly 500 million tonnes of freight crossed the UK’s borders. If this continues to happen in a “frictionless” way after Brexit, the disturbances to the status quo in Ireland will be limited. If it doesn’t, hang on to your hats. Frictionless trade is the only condition under which Brexit can happen without inflicting a hard border on Ireland. It is almost certainly a political impossibility if the UK leaves the customs union. But even if it could somehow be agreed in principle, there is another enormous obstacle: the actual capacity of the British to handle it. On Friday, after Theresa May’s big set-piece speech on Brexit, the DUP leader Arlene Foster issued a glowing endorsement. She referred back to a paper issued by the UK government last August: “Those proposals can ensure there is no hard border between Northern Ireland and the Republic of Ireland after we exit the EU.”

Foster recognises how much unionism is staking on that document and on the ability of the UK’s bureaucracies to deploy technology to take the sting out of the potentially toxic irritant of the Irish Border. This forces us to consider something that would previously have been of little interest to Irish people: the recent and dismal history of the UK’s adventures in using digital technology to control its borders. In 2003, the British established a spanking new “e-borders” system which was meant to collect and analyse advance passenger information for people travelling into the UK. It had a generous timescale – the full programme was meant to be in place by 2011. In 2010, the Home Office admitted that e-borders was so useless it had to be abandoned. By then, it had spent £340 million (€380 million) on the programme.

The cancellation of the contract led to a legal settlement for another £150 million. The Home Office then spent another £303 million on a new programme, bringing expenditure to £830 million. In 2015, the National Audit Office reported that all of this expenditure “has failed, so far, to deliver the full vision” of what was supposed to be achieved. The current date for completion of the programme is 2019. The whole thing will have taken a mere 16 years. On the same timescale, the new post-Brexit systems on which the future of Ireland may hinge would be delivered in 2035. In 2015, 55 million UK customs declarations were made by 141,000 traders. Once Brexit happens, that will increase fivefold to 255 million. Leaving aside all the issues of political principle, this is the vast logistical challenge that will have to be dealt with if May and Foster are to get the Brexit they want.

The numbers are interesting, the political stance not so much.

• Canada’s Looming Economic Meltdown (GT)

Canada’s Fourth Quarter economic growth was 1.7% following positive signs of growth earlier in the year. This growth, however modest, is attributable to easy credit and the increased consumer spending. At this time, Canadian households are facing one the largest indebtedness when compared to most other countries. For every $1.00 of income, consumers owe $1.68. This is the highest income to debt ratio in the world. For low-income Canadian households, the $1.00 disposable income to $3.33 debt ratio is even worst. Canada, along with other nations, especially emerging markets are carrying records levels of consumer debts, may be facing a serious crash as further growth becomes unsustainable.

Canada combined deficit rose to $18.1 billion in 2016, from $12.9 billion in the previous year. Higher debts and increased spending are causing serious concerns that the Canadian economy is on an unsustainable economic path. A considerable portion of Canada’s future economic growth has been predicated on strengthening and improving the country’s infrastructure. However, Prime Minister Trudeau’s policies are destined to strangle potential economic growth by shifting C$7.2 billion allocated to infrastructure improvements to government programs such as gender equality hiring opportunities. According to the Conference Board of Canada’s Craig Alexander: “This isn’t a budget that’s about growth, as much as it’s about equality and breaking down barriers to opportunity.”

Canada appears to be stunting its own economic growth as a matter of policy. Three major infrastructure projects, The Northern Gateway pipeline ($7.9 billion), the Pacific Northwest LNG project ($36 billion), and possibly the Energy East pipeline ($15.7 billion) would have been instrumental in guaranteeing economic growth for decades to come. However, these have been stymied in favor of Trudeau’s economic egalitarian vision. As a result, investors have been abandoning certain projects. The last time Canada’s saw such heavy-handed government interference in its economy was during the presidency of Trudeau’s father, Pierre Trudeau.

This could hurt.

• Coinbase Accused of Cheating Consumers in More Ways Than One (BBG)

Coinbase was slapped with a pair of lawsuits by disgruntled consumers, one alleging insider trading by employees at the giant digital currency exchange and the other accusing the company of failing to deliver cryptocurrencies to people who didn’t have accounts. The class-action suits come as Coinbase and other crypto startups are beefing up their staffs with regulatory experts to legitimize themselves as they prepare for government authorities to impose stricter rules. The first of the complaints filed in San Francisco federal court centers on Coinbase’s announcement in December that it would enable purchases of the bitcoin spinoff known as Bitcoin Cash. The customer who sued alleges that employees were tipped off a month in advance, allowing them to instantly swamp Coinbase with buy and sell orders and leaving other traders at a great disadvantage.

Coinbase CEO Brian Armstrong said at the time that the company would investigate an increase in the price of bitcoin cash in the hours before its Dec. 19 announcement and that any employee or contractor found to have violated internal policies would be terminated. “To date, neither Armstrong nor the company has disclosed the result of its purported investigation,” according to the March 1 lawsuit. In the other suit, two men claim that they were unable to redeem bitcoin that had been transferred to them through Coinbase via their email addresses in 2013. They allege that when they got reminder notices in February, they tried to recover the bitcoin only to discover that the links provided by Coinbase were broken. They accused the company of keeping their funds and say they want to represent “thousands” of other people in the same position.

As long as the press continue to ignore this, who cares really?

• US, UK Support World’s Worst Humanitarian Disaster In 50 Years (CP)

“The situation in Yemen – today, right now, to the population of the country,” UN humanitarian chief Mark Lowcock told Al Jazeera last month, “looks like the apocalypse.” 150,000 people are thought to have starved to death in Yemen last year, with one child dying of starvation or preventable diseases every ten minutes, and another falling into extreme malnutrition every two minutes. The country is undergoing the world’s biggest cholera epidemic since records began with over one million now having contracted the disease, and new a diptheria epidemic “is going to spread like wildfire” according to Lowcock. “Unless the situation changes,” he concluded, “we’re going to have the world’s worst humanitarian disaster for 50 years”.

The cause is well known: the Saudi-led coalition’s bombardment and blockade of the country, with the full support of the US and UK, has destroyed over 50% of the country’s healthcare infrastructure, targeted water desalination plants, decimated transport routes and choked off essential imports, whilst the government all this is supposed to reinstall has blocked salaries of public sector workers across the majority of the country, leaving rubbish to go uncollected and sewage facilities to fall apart, and creating a public health crisis. A further eight million were cut off from clean water when the Saudi-led coalition blocked all fuel imports last November, forcing pumping stations to close.

[..] As of late January, fuel imports through the country’s main port Hodeidah were still being blocked, with cholera cases continuing to climb as a result. And on 23rd January, the UN reported that there are now 22.2 million Yemenis in need of humanitarian assistance – 3.4 million more than the previous year – with eight million on the brink of famine, an increase of one million since 2017.

America’s fast becoming a cartoon nation.

• Light It Up (Jim Kunstler)

It must be hard on The New York Times editors to set their hair on fire day after day in their effort to start World War Three. Today’s lead story, Russian Threat on Two Fronts Meets Strategic Void in the U.S., aims to keep ramping up twin hysterias over a new missile gap and fear of Russian “meddling” in the 2018 midterm elections. The Times’s world-view begins to look like the script of a Batman sequel with Vlad Putin cast in The Joker role of the cackling psychopath who must be stopped at all costs! America’s generals have switched on the Batman signal beacon, but Donald Trump in the role of the Caped Crusader, merely dithers and broods in the splendid isolation of his 1600 Penn Avenue Bat Cave, suffering yet another of his endless bipolar identity crises.

For God’s sake, The Times, shrieks, do something! The Russians are coming! (Gotham City’s Chief of Police Hillary said exactly that last week in a Tweet!) I think they misunderstood Mr. Putin’s recent message when he announced a new hypersonic missile technology that would, supposedly, cut through any imaginable US missile defense. The actual message, for the non mental defectives left in this drooling idiocracy of a republic, was as follows: Nuclear war remains unthinkable, so kindly stop thinking about it. Mr. Putin’s other strategic position is also misrepresented — actually, not even acknowledged — in Monday’s NYT propaganda blast, namely, to discourage the USA’s decades-long policy of regime change here, there, and everywhere on the planet, creating a debris trail of one failed state after another.

As a true-blue American, I must say these are two admirable propositions. Is it fatuous to add that atomic war is unlikely to benefit anyone? Or that the world has had enough of US military “meddling” in foreign lands? Of course the shopworn trope of Russian “meddling” in the 2016 election still occupies the center ring of the American political circus. Today’s Times story includes another clumsy attempt to set up expectations that the 2018 midterm elections will be hacked by Russia, in order to keep the hysteria at code-red level. As usual, the proposition assumes that the alleged 2016 hacking is both proven and significant when, going on two years, there is no evidence of hacking besides the obviously amateurish Facebook troll farm.

Sickening to watch.

• The Ocean Currents Brought Us In A Lovely Gift Today (G.)

A British diver has captured shocking images of himself swimming through a sea of plastic rubbish off the coast of the Indonesian tourist resort of Bali. A short video posted by diver Rich Horner on his social media account and on YouTube shows the water densely strewn with plastic waste and yellowing food wrappers, the occasional tropical fish darting through the deluge. The footage was shot at a dive site called Manta Point, a cleaning station for the large rays on the island of Nusa Penida, about 20km from the popular Indonesian holiday island of Bali. In a Facebook post on 3 March Horner writes how the ocean currents had carried in a “lovely gift” of jellyfish and plankton, and also mounds and mounds of plastic.

“Plastic bags, plastic bottles, plastic cups, plastic sheets, plastic buckets, plastic sachets, plastic straws, plastic baskets, plastic bags, more plastic bags, plastic, plastic,” he says, “So much plastic!” The video shows Horner swimming through the mess for several minutes and also how the waste coagulated on the surface, mixing in with some organic matter to form a slick of floating rubbish. Manta Point is regularly frequented by numerous manta rays that visit the site to get cleaned of parasites by smaller fish, but the video shows just one lone manta in the background. “Surprise, surprise, there weren’t many mantas there at the cleaning station today…” notes Horner, “They mostly decided not to bother.”

Several weeks ago thousands across Bali took part in a mass clean up, in attempt to rid the island’s beaches, rivers and jungles of waste, and raise awareness about the harmful impacts of trash. Rich Horner said that while divers regularly see “a few clouds of plastic” in the rainy season, the slick he identified is the worst yet. Divers returned to the site the next day, he reports, by which time the slick had already moved on, “continuing on its journey, off into the Indian Ocean..”

Volatility on Steroids

Oct 272017

October 27, 2017 Posted by Raúl Ilargi Meijer at 1:09 pm Finance Tagged with: Costa Rica, happiness, Koyaanisqatsi, Nelson Lebo, permaculture, Pura Vida, resilience, volatility 6 Responses »

Salvador Dalí White calm 1936

It’s been a while since we last heard from longtime friend of the Automatic Earth Dr. Nelson Lebo III, New Englander living in Wanganui, New Zealand. Nelson has written a fine collection of articles on this site through the years.

Of course I thought, when I first saw this piece in my mailbox, that he would have written about New Zealand’s new prime minister, Labour’s 37-year-young Jacinda Ardern, whose first action in her new job will be to prevent foreigners from buying existing homes in her country. It’ll be interesting to see how she intends to do so while remaining inside the Trans Pacific Partnership -TPP- agreement.

Radio New Zealand has a portrait in which she says ‘I Want The Government … To Bring Kindness Back’. And obviously my first thought was: wait till you meet Donald Trump. But it would be misleading to put the lack of kindness in politics on his shoulders. There’s too much blood on too many hands.

But Nelson didn’t address her this time. I hope he will soon. Instead, and I should have known, he writes about Koyaanisqatsi, life out of balance. When I wrote The Koyaanisqatsi Economy a month ago, he said he had been thinking of the same theme.

Nelson named his article “Pura Vida trumps Koyaanisqatsi”, but I thought his emphasis on volatility is too important to not be the headline. Especially given that volatility in financial markets is at a -near- record low, while it appears blatantly obvious that this not reflect the ‘real world’ at all.

Nelson’s summary of the real world: “..hurricanes, mass shootings, hurricanes, opioid epidemics, hurricanes, people sleeping in cars, hurricanes, rising suicide rates, hurricanes, and children dying from cold damp homes..”

If that doesn’t spell volatility, what does? Forget about financial markets reflecting anything real anymore. Thanks to central banks, markets are fiddling while Rome burns.

Heeeeeere’s … Nelson:

Dr. Nelson Lebo III: Volatility is the new normal – that’s the message I gave a local Rotary Club when I spoke to members four or five years ago. I had been told beforehand the group was “worldly” and specifically instructed in the invitation to challenge them with my presentation. As a weekly columnist in the city’s paper – the Wanganui Chronicle – I was widely known for my positions on wealth inequality, climate change, and debt, as well as a wide range of practical approaches to address these issues.

Around that time it was clear that a post-GFC new normal was functioning worldwide and many writers were using the term. By then The Spirit Level (Pickett & Wilkinson, 2009) had been widely read and widely praised for its documentation of the relationship between wealth and income inequality and social problems. Additionally, peer reviewed research based on decades worth of data had shown there was a quantitatively measurable increase in extreme weather events: more big storms and more big droughts.

I thought my audience would be well on board.

Judging from the response that day, however, the brief I had been given was misguided and most club members were neither expecting nor wanting a presentation that challenged the dominant paradigm of infinite growth without consequences no matter how factual. As a mid-week midday meeting with New Zealand ‘fush ‘n chups’ on the menu the message that the-world-as-you-know-it-has-changed-forever was a bit heavy for people on their lunch break.

The response that day was, of course, perfectly ‘normal’. Almost no adult human seeks out new and different worldviews. On the contrary, we are far more inclined to cling to outdated ones, à la “Make America Great Again” than to acknowledge changing realities.

Social media allows us to reverberate in echo chambers of our own beliefs where we know we’re right because the echo told us so. Social science researchers have told us this for decades. The Internet just makes it worse and more obvious.

I’ve been writing about Trump, doubling-down and the post-truth world for two years now, and if anything I am more certain of the point I’ve been trying to make: most people are irrational. Seems there’s now a Nobel Laureate who has been arguing the same for decades. Behavioral economist Richard Thaler was recently awarded a Nobel for his study of the psychology of economics, which seeks to understand how we are irrational and the impact on traditional economic theories that have failed time and again (think 2008 Global Financial Crisis) because they don’t sufficiently incorporate human factors. (Remember Greenspan’s admission?)

In no way do I intend to single out the Wanganui Rotarians, but rather use this example as illustrative for what my community, nation, and the entire world face: volatility made worse by inertia. In other words, the longer we choose to ignore inconvenient truths the greater will be their negative impacts.

This situation usually manifests in the form of tipping points . Malcolm Gladwell defined a tipping point in his debut book of the same name as “the moment of critical mass, the threshold, the boiling point.” Everything looks fine with the economy and the climate…until it’s not. And by ‘not fine’ we are talking really NOT FINE à la Greece, Puerto Rico, Houston, etc.

Tipping points is volatility on steroids. Brace yourselves.

Well-informed leaders from President Obama to Pope Francis agree the greatest threats facing humanity are climate change and wealth inequality. I’ve written extensively about both for many years yet neither appears to get much traction locally or globally. Our ‘leaders’ ignore these issues at all of our peril because the result of each is increasing volatility in many forms: social, economic, financial, political, and an increasing incidence of extreme weather events.

Volatility is not good for social order, and where I live is a perfect example of the canary in the coalmine: a coastal, river city with high levels of inequality. It’s a tipping point waiting to happen.

Some readers may remember the 1982 film by Godfrey Reggio called Koyaanisqatsi, named using a Hopi term meaning “chaotic life” or “life out of balance.” The film is unnerving, as is much of what comes via news media these days: hurricanes, mass shootings, hurricanes, opioid epidemics, hurricanes, people sleeping in cars, hurricanes, rising suicide rates, hurricanes, and children dying from cold damp homes. And then there’s Myanmar: When Buddhists become the aggressors, you know the world is well and truly out of balance.

Okay, so the world is out of balance. What can be done about it?

Our solution to imbalance, as any regular reader of our blog knows, is called “Eco-Thrifty.” This approach to design and to life is about living better on less. Seems we have good company along these lines in the form of Costa Rica, the small Central American nation that regularly tops the Happy Planet Index published by the New Economics Foundation.

Despite per capita income one quarter that of New Zealand (ranked 38th of 140) and one fifth that of the US (108th of 140) Costa Rica matches many Scandinavian countries in terms of equality, wellbeing, life expectancy and ecological impact.

As Jason Hickel of the Guardian recently put it, “Costa Rica proves that rich countries could theoretically ease their consumption by half or more while maintaining or even increasing their human development indicators.”

“The opposite of growth isn’t austerity, or depression, or voluntary poverty. It is sharing what we already have, so we won’t need to plunder the earth for more.”

Sharing is at the heart of the permaculture ethics, where it is joined by caring for the environment and caring for people. Although we practice permaculture on our farm and in our community, we’re not dogmatic about it. What drives the eco-thrifty bus is resilience accompanied by regeneration.

Resilience, in this context, is the ability to withstand a pulse. It does not happen by accident. It can be designed, built and managed. Resilience only matters 0.0001% of the time, but when it matters it really matters. Resilient homes stand up to earthquakes and hurricanes. Resilient farms stand up to major rain events and extended droughts. Resilient communities withstand economic downturns and ‘natural disasters’.

Regeneration, in this context, is about getting better, stronger, more resilient over time. Regenerative farms grow food while building soil fertility, reducing erosion, storing carbon, managing storm water, and increasing biological diversity. Regenerative communities reduce crime, domestic violence, drug abuse, and suicide rates while keeping wealth and resources circulating locally. They improve quality of life while shrinking energy use, pollution and wealth inequality.

From these perspectives Costa Rica is a good, albeit imperfect, case study. It is, however, about the best example we can find and has the data to show long-term consistently high quality of life.

Pura Vida trumps Koyaanisqatsi.

Debt Rattle December 12 2016

Dec 122016

December 12, 2016 Posted by Raúl Ilargi Meijer at 8:53 am Finance Tagged with: BIS, China, CIA, debt, Greece, happiness, India, leverage, lies, OPEC, Palmyra, Trump 5 Responses »

‘Daly’ Store, Manning, South Carolina July 1941

• CIA’s Blatant Lies Demolished By A Little Simple Logic (Craig Murray)

• Chinese Media Hit Out At Trump Over ‘One China’ Comments (CNBC)

• Dollar Debt Issuance Soars As Central Banks Take A Back Seat – BIS (CNBC)

• Market ‘Paradigm Shift’ May Be Under Way, More Volatility Likely – BIS (R.)

• China’s Highly Leveraged Real Estate Developers Face Tough 2017 (BBG)

• Top Tech Executives To Attend Trump Summit On Wednesday (R.)

• Italy’s Monte dei Paschi To Seek Private Sector-Led Rescue (AFP)

• Saudi’s Willing To Cut Oil Output Even More Than Agreed (BBG)

• India Workers Abandon Building Sites After Cash Crackdown (R.)

• Foxconn Puts 25% Of Its India Workers On Bench After Demonetization (ET)

• Venezuela Pulls Most Common Banknote From Circulation To ‘Beat Mafia’ (R.)

• Syria’s Palmyra Falls To ISIS Once More (DW)

• Vienna Will Veto EU Membership Talks With Turkey – Austrian FM (RT)

• Economic Migrants Put Extra Strain On Greek Asylum System (Kath.)

• Greece Is Rock Bottom In EU’s Social Justice Rankings (Kath.)

• Happiness Depends On Health And Friends, Not Money (G.)

A merciless put-down by Craig Murray, former British ambassador to Uzbekistan, and former Rector of the University of Dundee. Close associate of Assange.

• CIA’s Blatant Lies Demolished By A Little Simple Logic (Craig Murray)

I have watched incredulous as the CIA’s blatant lie has grown and grown as a media story – blatant because the CIA has made no attempt whatsoever to substantiate it. There is no Russian involvement in the leaks of emails showing Clinton’s corruption. Yes this rubbish has been the lead today in the Washington Post in the US and the Guardian here, and was the lead item on the BBC main news. I suspect it is leading the American broadcasts also. A little simple logic demolishes the CIA’s claims. The CIA claim they “know the individuals” involved. Yet under Obama the USA has been absolutely ruthless in its persecution of whistleblowers, and its pursuit of foreign hackers through extradition.

We are supposed to believe that in the most vital instance imaginable, an attempt by a foreign power to destabilise a US election, even though the CIA knows who the individuals are, nobody is going to be arrested or extradited, or (if in Russia) made subject to yet more banking and other restrictions against Russian individuals? Plainly it stinks. The anonymous source claims of “We know who it was, it was the Russians” are beneath contempt. As Julian Assange has made crystal clear, the leaks did not come from the Russians. As I have explained countless times, they are not hacks, they are insider leaks – there is a major difference between the two.

And it should be said again and again, that if Hillary Clinton had not connived with the DNC to fix the primary schedule to disadvantage Bernie, if she had not received advance notice of live debate questions to use against Bernie, if she had not accepted massive donations to the Clinton foundation and family members in return for foreign policy influence, if she had not failed to distance herself from some very weird and troubling people, then none of this would have happened. The continued ability of the mainstream media to claim the leaks lost Clinton the election because of “Russia”, while still never acknowledging the truths the leaks reveal, is Kafkaesque.

[..] both Julian Assange and I have stated definitively the leak does not come from Russia. Do we credibly have access? Yes, very obviously. Very, very few people can be said to definitely have access to the source of the leak. The people saying it is not Russia are those who do have access. After access, you consider truthfulness. Do Julian Assange and I have a reputation for truthfulness? Well in 10 years not one of the tens of thousands of documents WikiLeaks has released has had its authenticity successfully challenged. As for me, I have a reputation for inconvenient truth telling.

Contrast this to the “credible sources” Freedland relies on. What access do they have to the whistleblower? Zero. They have not the faintest idea who the whistleblower is. Otherwise they would have arrested them. What reputation do they have for truthfulness? It’s the Clinton gang and the US government, for goodness sake. In fact, the sources any serious journalist would view as “credible” give the opposite answer to the one Freedland wants. But in what passes for Freedland’s mind, “credible” is 100% synonymous with “establishment”. When he says “credible sources” he means “establishment sources”. That is the truth of the “fake news” meme. You are not to read anything unless it is officially approved by the elite and their disgusting, crawling whores of stenographers like Freedland.

The worst thing about all this is that it is aimed at promoting further conflict with Russia. This puts everyone in danger for the sake of more profits for the arms and security industries – including of course bigger budgets for the CIA. As thankfully the four year agony of Aleppo comes swiftly to a close today, the Saudi and US armed and trained ISIS forces counter by moving to retake Palmyra. This game kills people, on a massive scale, and goes on and on.

He’s not trying to trade the policy.

• Chinese Media Hit Out At Trump Over ‘One China’ Comments (CNBC)

Donald Trump attracted stinging criticism from China’s state media after the President-elect stated that the U.S. did not necessarily have to stick to the “One China” policy. Communist Party-owned paper, Global Times, published in an opinion piece with the headline: “Trump, please listen clearly, the One China policy cannot be traded” as it warned Trump that China cannot “cannot be easily bullied”. “If Trump abandons the one-China principle, why should China need to be U.S.’ partner in most international affairs?” said the paper, which is known for its extreme nationalistic views. Most would think Trump is “ignorant like a child” in handling diplomacy, the paper added.

Its English language editor was less strident, with the paper citing a foreign affairs analyst chalking up Trump comments to “inexperience” in a piece entitled “Prevent ‘immature’ Trump being manipulated by conservative forces: analyst”. “As a businessman, he thinks it’s quite normal to do business, but he hasn’t realized that the Taiwan question is not a business to China. The Taiwan question is not negotiable,” China Foreign Affairs University professor Li Haidong was quoted as saying. Li also said Trump didn’t have a plan to challenge the “One China” policy. China and Taiwan parted ways in 1949, when the Nationalist Party (KMT) was forced to retreat to Taiwan by the Chinese Communist Party and China views the territory as a renegade province that can be re-taken by force if necessary. Washington embraced the “One China” policy in 1979 under which Beijing views Taiwan, Hong Kong and Macau as part of China.

And at the end of the day central banks are going to buy up all the devalued paper again?

• Dollar Debt Issuance Soars As Central Banks Take A Back Seat – BIS (CNBC)

The amount of dollar-denominated debt issued by financial institutions stepped up to reach a record high during the third quarter as the influence of central banks receded, according to the latest quarterly review from the Bank of International Settlements (BIS), released on Sunday. “Developments during this quarter stand out for one reason: For once, central banks took a back seat,” Claudio Borio, head of the BIS’ monetary and economic department was quoted as saying in the review. “It is as if market participants, for once, had taken the lead in anticipating and charting the future, breaking free from their dependence on central banks’ every word and deed,” he continued. Total issuance of international debt securities during the third quarter slipped 10% to hit $1.4 trillion.

Within advanced economies, a below-average pace of repayments meant quarterly net issuance jumped 40% with the year-to-date net figure at its highest level since 2009. Turning to emerging markets, quarterly net issuance dropped 35% from its abnormally large amount the previous quarter but the year-to-date figure still showed a 73% jump over 2015’s equivalent number. The lower EM net issuance figure this quarter particularly reflected a sharp slowdown in sovereign borrowing by oil-producing governments. However, looking ahead, fourth-quarter figures should be bolstered once again by Saudi Arabia’s $17.5 billion bond issue placed in October and it is worth remembering the heady pace of issuance during the second quarter, driven by oil exporters such as Oman, Qatar and the United Arab Emirates.

Who needs central banks?

• Market ‘Paradigm Shift’ May Be Under Way, More Volatility Likely – BIS (R.)

Financial markets have been remarkably resilient to rising bond yields and sudden shift in outlook following last month’s shock U.S. election result, but the sheer scale of uncertainties ahead means the adjustment will be “bumpy”, the BIS said on Sunday. While the resilience to recent market swings following the U.S. election and Brexit vote have been welcome, investors should be braced for further bouts of extreme volatilty and “flash crash” episodes like the one that hit sterling in October, the Bank for International Settlements said. “We do not quite fully understand the cause of such unusual price moves … but as long as such moves remain self-contained and do not threaten market functioning or the soundness of financial institutions, they are not a source of much concern: we may need to get used to them,” said Claudio Borio, Head of the Monetary and Economic Department at the BIS.

“It is as if market participants, for once, had taken the lead in anticipating and charting the future, breaking free from their dependence on central banks’ every word and deed,” Borio said. This suggests investors may finally be learning to stand on their own two feet after years of relying on central bank stimulus, signaling a potential “paradigm shift” for markets, he said. “But the jury is still out, and caution is in order. And make no mistake: bond yields are still unusually low from a long-term perspective,” Borio said. [..] Bond yields have risen sharply since the middle of the year. The benchmark 10-year U.S. Treasury yield has jumped 100 basis points since July’s multi-decade low, with a growing number of investors saying the 35-year bull run in bonds is now over.

I say it almost every day: shadow banks.

• China’s Highly Leveraged Real Estate Developers Face Tough 2017 (BBG)

For China’s highly leveraged real estate developers, 2017 could be the year that the borrowing binge finally catches up with them. Regulators have choked off a key source of funding, with the Shanghai Stock Exchange raising the threshold for property firms to sell bonds on their platform in October. Since then, builders haven’t sold any notes in a market that played host to about 40% of their onshore debentures over the past two years, data compiled by Bloomberg show. The curbs couldn’t have come at a worse time, with a record $17.3 billion of developer bonds due next year, and another $27.9 billion in 2018. China’s government is treading a fine line with the curbs on debt issuance as it tries to gently deflate the real-estate bubble while avoiding wider fallout in an industry that accounts for as much as 20% of Asia’s largest economy.

The sector is also threatened by a broader increase in funding costs, with the yield premium on AAA-rated domestic corporate notes reaching the widest since July 2015, amid a global pullback in bonds and targeted central bank steps to stem leverage. Smaller developers will be the hardest hit, with bigger players still able to sell exchange-regulated bonds, according to NN Investment Partners. “Overall, funding conditions will become more challenging in 2017,” said Clement Chong, senior credit analyst in Singapore at NN Investment. “Only stronger developers can issue onshore bonds, subject to a number of conditions. But smaller builders will be forced to come to the offshore market to issue bonds, which will be subject to regulatory approval.”

Most of them were strong Hillary supporters.

• Top Tech Executives To Attend Trump Summit On Wednesday (R.)

Top executives from Alphabet Inc, Apple Inc and Facebook Inc are among a small group of tech leaders invited to a summit to be held on Wednesday by U.S. President-elect Donald Trump, Recode reported, citing sources. Executives from Microsoft Corp, Intel Corp and Oracle Corp will also be among “a very heady group of less than a dozen, comprising most of the key players in the sector” to attend the summit, Recode said. Billionaire entrepreneur and Tesla Motors Inc CEO Elon Musk will also be in attendance, the Wall Street Journal reported, citing people familiar with the matter.

“I plan to tell the president-elect that we are with him and are here to help in any way we can,” Oracle CEO Safra Catz told Reuters in an emailed statement. “If he can reform the tax code, reduce regulation, and negotiate better trade deals, the U.S. technology community will be stronger and more competitive than ever.” Amazon.com Inc CEO and founder Jeff Bezos was also invited and is likely to attend, Recode said citing sources with knowledge of the situation.

What’s in it for Qatar?

• Italy’s Monte dei Paschi To Seek Private Sector-Led Rescue (AFP)

Italy’s troubled Monte dei Paschi di Siena (BMPS) bank on Sunday announced it would go ahead with plans to seek a private sector-led rescue, narrowly avoiding the need to seek a government bailout. The world’s oldest bank’s woes have raised concerns over the eurozone’s third-largest economy, particularly in the aftermath of prime minister Matteo Renzi’s resignation after a crushing referendum defeat. The bank’s prospects appeared somewhat less alarming Sunday however, after Italian President Sergio Mattarella asked Renzi’s ally Paolo Gentiloni to form a new government. BMPS’s stock tumbled Friday over reports that the ECB had denied it more time to raise the cash it needed to avoid being wound down, triggering speculation it would be forced to seek a government bailout.

The bank – seen as the weak link in Italy’s economy – had asked to be given until January 20 to avoid collapse. The request was reportedly refused, with the ECB’s board believed to have ruled that two weeks of extra time would be of little use in turning around the historic bank. In a statement published late Sunday after a board meeting in Milan, BMPS said it had “decided to go ahead” with plans to seek a market-led rescue by December 31. The bank had initially announced its plan to seek a private sector-led rescue in July. The bank, whose stock has fallen more than 80% this year, plans the sale of €27.6 billion in non-performing loans. It also aims for a capital injection of up to €5 billion. Italian media reports say the Qatar Investment Authority – the Gulf nation’s state-owned holding company – may be willing to contribute €1 billion.

Everyone’s willing to cut outputs, but not if it costs money or market share. Not going to work.

• Saudi’s Willing To Cut Oil Output Even More Than Agreed (BBG)

Saudi Arabia signaled it’s ready to cut oil production more than expected, a surprise announcement made minutes after Russia and several non-other OPEC countries pledged to curb output next year. Taken together, OPEC’s first deal with its rivals since 2001 and the Saudi comments represent a forceful effort by producers to wrest back control of the global oil market, depressed by persistent oversupply and record inventories. “This is shock and awe by Saudi Arabia,” said Amrita Sen at Energy Aspects in London. “It shows the commitment of Riyadh to rebalance the market and should end concerns about OPEC delivering the deal.” Oil prices have surged more than 15% since OPEC announced Nov. 30 it will cut production for the first time in eight years, rising this week briefly above $55. The price rise has propelled the shares of energy groups from Exxon Mobil to shale firms such as Continental Resources.

Everyone needs a bank account, but the banks have no yime for that since they’re exchanging old for new money. Sounds like a plan.

• India Workers Abandon Building Sites After Cash Crackdown (R.)

Hundreds of thousands of construction workers have returned home since Prime Minister Narendra Modi abolished high-denomination banknotes, leaving some building sites across the country facing costly delays. A month after Modi’s shock move to take away 86% of cash in circulation to crush the shadow economy, the growing labour shortage threatens to slow a recovery in India’s construction industry, which accounts for 8% of gross GDP and employs 40 million people. Work at SARE Homes’ residential projects, spanning six cities, has slowed dramatically as migrant workers, who are out of cash and have no bank accounts to draw from, have little choice but to return to their villages. “Construction work at all projects has slowed down in a big way,” managing director Vineet Relia told Reuters.

Property enquiries, meanwhile, have slumped by 80% around the Indian capital since the cash crackdown, according to property portal 99acres. Getamber Anand, president of Indian builders’ association CREDAI, said projects nationwide had been hit, and estimated that roughly half of the migrant workforce, numbering in the low millions, had left for home. Road developers have also reported a slowdown as they struggle to find sufficient labour. The exodus shows little sign of reversing, risking damage to construction activity and the wider economy into 2017, despite Modi’s assurances that hardships from his radical “demonetisation” should be over by the end of the year. [..] for now, millions of workers who depend on daily wages for food and shelter are struggling. Many have never held a bank account, and even if they wanted one, some do not have the necessary documents to do so.

CREDAI’s Anand predicts activity on construction sites will not return to normal until April, and only once labourers are able to open accounts at banks still struggling to serve long queues of people desperate for cash. “Right now the banks say they don’t have time to open accounts. It’s the biggest challenge,” Anand said.

Modi said it would all be fine by the end of the year. Not going to happen.

• Foxconn Puts 25% Of Its India Workers On Bench After Demonetization (ET)

Foxconn, the world’s largest contract manufacturer and poster boy of the government’s Make in India project, has asked nearly a fourth of its 8,000 factory workers to go on paid leave for two weeks after last month’s demonetisation of high value notes sparked a severe cash crunch that saw sales slump almost 50%, forcing the company to slash production by half. The government’s move to ban Rs 500 and Rs 1,000 notes from November 9 has had a domino effect on the mobile phone industry, where a large majority of mobile phones are bought for less than Rs 5,000 and most of the transactions happen through cash.

Consumer purchase power has been reduced dramatically – mobile phone monthly sales halved to Rs 175-200 crore post demonetisation – and sales revival is not looking up, as was perceived earlier, industry insiders said. Leading local players including Intex, Lava and Karbonn are planning to lay off or bench 10-40% of their workforce, as they cut production to control inventory pile-ups in retail channels with consumers delaying cash purchases after Nov 8 demonetisation sucked out cash from the market. Lava is shutting down its plant – which employs around 5000 people -for a week starting December 12, while others could soon follow, industry insiders said.

Failure of Maduro or intervention from abroad? Venezuela still has a lot of oil.

• Venezuela Pulls Most Common Banknote From Circulation To ‘Beat Mafia’ (R.)

Venezuela, mired in an economic crisis and facing the world’s highest inflation, will pull its largest bill, worth two US cents on the black market, from circulation this week ahead of introducing new higher-value notes, President Nicolás Maduro said on Sunday. The surprise move, announced by Maduro during an hours-long speech, is likely to worsen a cash crunch in Venezuela. Maduro said the 100-bolivar bill will be taken out of circulation on Wednesday and Venezuelans will have 10 days after that to exchange those notes at the central bank. Critics slammed the move, which Maduro said was needed to combat contraband of the bills at the volatile Colombia-Venezuela border, as economically nonsensical, adding there would be no way to swap all the 100-bolivar bills in circulation in the time the president has allotted.

Central bank data showed that in November, there were more than six billion 100-bolivar bills in circulation, 48% of all bills and coins. Authorities on Thursday are due to start releasing six new notes and three new coins, the largest of which will be worth 20,000 bolivars, less than $5 on the streets. No official inflation data is available for 2016 though many economists see it in triple digits. Economic consultancy Ecoanalitica estimates annual inflation this year at more than 500%. The oil-producing nation’s bolivar currency has fallen 55% against the US dollar on the black market in the last month.

Putin won’t like this.

• Syria’s Palmyra Falls To ISIS Once More (DW)

On Sunday, the “Islamic State” (IS) retook the desert city of Palmyra in Syria after being driven out of the city hours earlier by heavy Russian aerial attacks, a group monitoring the country’s conflict reported. “Despite the ongoing air raids, IS retook all of Palmyra after the Syrian army withdrew south of the city,” said Rami Abdel Rahman, who heads the Britain-based Syrian Observatory of Human Rights. The Amaq news agency, which has links to the IS militants, also reported that the group had retaken “full control” of the city after first taking Palmyra’s citadel (above photo), which overlooks the historic site.

After launching an offensive in the region a few days before, IS pushed into the city on Saturday, only to be forced to withdraw by a fierce Russian bombing campaign that killed scores of its fighters. The Observatory reported that the militants regrouped on the outskirts of the city and made a successful attempt to retake control. IS has had possession of the city once before, in May last year, destroying many of its ancient treasures, and Palmyra’s recapture could put the remaining artifacts and monuments in extreme danger. The group considers certain artifacts and monuments to be “idolatrous,” and has severely damaged important historic sites and objects across areas of Syria and Iraq that it controls.

Nothing else makes sense.

• Vienna Will Veto EU Membership Talks With Turkey – Austrian FM (RT)

Any further negotiations with Ankara over its future European Union membership will be blocked by Vienna, the Austrian Foreign Minister said, slamming Ankara’s alleged human rights violations in the post-coup crackdown on any opposition. The European Parliament passed a non-binding resolution on November 24 to freeze Turkey’s EU accession process, citing Ankara’s crackdown after July’s failed coup. The final verdict on Turkey’s immediate EU future will be decided following the European Council meeting that is scheduled to take place on December 15-16. Granting visa liberalization to Turkish citizens will also be on the table during the discussions. Before the crucial meeting, the EU’s General Affairs Council of foreign ministers, which meets once a month, will convene to discuss the potential role of Ankara in the EU.

At the meeting, Austria intends to block the continuation of EU accession talks with Turkey, the country’s Foreign Minister, Sebastian Kurz, told Spiegel online. “The European Parliament has adopted a courageous and correct resolution demanding that the accession negotiations with Turkey be frozen. In the conclusions of the Foreign Ministers, there must also be a reaction to developments in Turkey. We must also propose that the accession talks be frozen,” Kurz said. The minister added that the Netherlands and Bulgaria seem to share Vienna’s position on Turkey. The 30-year-old politician said that his country believes that Turkey does not share EU values. He called for a clear response from the European Union to the events which followed the July 15 failed coup.

Over 300 arrivals a day. Numbers are rising again.

• Economic Migrants Put Extra Strain On Greek Asylum System (Kath.)

The numbers of migrants crossing from Turkey to the eastern Aegean islands are on the rise, but the%age of those who merit international protection is on the wane, say authorities, who are looking for ways to speed up asylum procedures. Speaking to Kathimerini on condition of anonymity, local officials told the newspaper that refugee families currently stranded on the islands are reluctant to share a roof with economic migrants, mostly young men from the Maghreb region (Morocco, Tunisia, Algeria) who allegedly often display delinquent behavior and are on the front lines of riots at reception centers. Migration Policy Minister Yiannis Mouzalas recently admitted that between 70 and 80% of arrivals were now migrants while before it was refugees escaping conflict and war.

Whereas the latter appear aware that the Balkan route to Western Europe is officially closed, the groups of young male economic migrants appear more willing to take the risks of reaching Europe. A total 324 undocumented migrants crossed from Turkey on Friday, most of them from Africa and Pakistan. Another 330 reached Greece on Saturday. Rising numbers are putting a big strain on Greece’s asylum system as virtually all newcomers make a claim for asylum despite knowing that they do not fulfill the necessary criteria for international protection. “Even so, we are still obliged to follow the formal procedure and fulfill the European directives,” Maria Stavropoulou, director of the Greek Asylum Service, told Kathimerini.

Firdt you put them down, then you write a report on it.

• Greece Is Rock Bottom In EU’s Social Justice Rankings (Kath.)

Greece came out worst among the bloc’s 28 member-states in the EU’s annual report on social justice for 2015, reflecting the impact of the financial crisis on society, social cohesion and the competitiveness of the Greek economy. The “Social Justice in the EU” report shows that not only is Greece the bloc’s laggard, but the situation in the country is deteriorating, with the gap between Greece and Romania – the second to last in the rankings – growing. Furthermore, the report indicates that the gap between the European North and South is also widening. The social and economic inequality that has emerged in Greece during the crisis is now taking on a permanent structural character, while the local economy appears to be losing its most important comparative advantage – human capital.

The report examines six social justice sectors: poverty prevention, equal rights in education, labor market access, social cohesion, and the absence of discrimination in healthcare and justice. It argues that those sectors have seen a downturn across the EU in the last seven years, reaching their lowest point in the period from 2012 to 2014. On the poverty and social exclusion front, the situation in Greece is particularly worrying, as 35.7% of the population faces the risk of poverty, with the figure for children even higher, at 37.8%, from 36.7% in 2014. The %age of children living in conditions of serious material deprivation has grown to 25.7% from 23.8% in 2014 and 10.4% in 2008. The situation is also disturbing in the labor market: In 2015 just 50.8% of Greeks of working age actually worked – the lowest rate in the EU.

What happened to the warm gun?

• Happiness Depends On Health And Friends, Not Money (G.)

Most human misery can be blamed on failed relationships and physical and mental illness rather than money problems and poverty, according to a landmark study by a team of researchers at the London School of Economics (LSE). Eliminating depression and anxiety would reduce misery by 20% compared to just 5% if policymakers focused on eliminating poverty, the report found. Lord Richard Layard, who led the report, said on average people have become no happier in the last 50 years, despite average incomes more than doubling. The economist and former adviser to Tony Blair and Gordon Brown said the study, called Origins of Happiness, showed that measuring people’s satisfaction with their lives should be a priority for every government. T

he researchers analysed data from four countries including the US and Germany. Extra spending on reducing mental illness would be self-financing, the researchers added, because it would be recovered by the government through higher employment and increased tax receipts together with a reduction in NHS costs from fewer GP visits and hospital A&E admissions. “Tackling depression and anxiety would be four times as effective as tackling poverty. It would also pay for itself,” he said. The report supports the arguments put forward by Layard over several decades that social and psychological factors are more important to the wellbeing of individuals than income levels. “Having a partner is as good for you as being made unemployed is bad for you,” he said.

The report claims that state-run organisations, including schools, must become more focused on tackling anxiety and mental health issues. “This evidence demands a new role for the state – not ‘wealth creation’ but ‘wellbeing creation’,” Layard said. “In the past, the state has successively taken on poverty, unemployment, education and physical health. But equally important now are domestic violence, alcoholism, depression and anxiety conditions, alienated youth, exam mania and much else. These should become centre stage.”

Debt Rattle July 17 2016

Jul 172016

July 17, 2016 Posted by Raúl Ilargi Meijer at 8:45 am Finance Tagged with: Brexit, eurozone, happiness, insanity, Italy, NPL, struggle, suicide, travesty Comments Off

Russell Lee Store, La Forge, Missouri 1938

• Why Brexit Is The Shot In The Arm Britain’s Economy Needs (CityAM)

• Italy’s Banking Crisis Will Shake The Eurozone To Its Core (Tel.)

• Italy Hires JP Morgan To Hammer Out €50 Billion Bad Bank Bailout Plan (Tel.)

• Great Numbers! Curious Timing? (Rubino/ZH)

• A Historical Measurement Of The Insanity Of Central Bankers (Gordon)

• Russia Purges Its Banking Industry (BBG)

• China Will Struggle To Maintain Growth Pace For Wages (R.)

• Homebuilders Struggle To Keep Up With Canada Boom (R.)

• Bank of Mum and Dad Is Now Paying The Rent, Too (Ob.)

• A Travesty of Financial History (Michael Hudson)

• One of India’s Poorest States Just Created a Happiness Ministry (BBG)

No-one knows how this will play out, not the leavers nor the fear mongerers on the other side. And basing conclusions on anything that happens in today’s highly manipulated markets is fraught with error.

• Why Brexit Is The Shot In The Arm Britain’s Economy Needs (CityAM)

It is less than three weeks since the British people voted to leave the EU. In that time, much of the media response has been verging on hysterical. The political establishment, City and even bookmakers simply did not see Leave coming. Figures who were top of their game a month ago have fallen on their swords: David Cameron, George Osborne, Michael Gove. We have been treated to tales of woe and despair, highlighting the fall in sterling, claiming there was no Plan B, portrayals of Leave supporters as naive at best, stupid at worst and being responsible for economic catastrophe. This analysis is unreasonable – early signs post-Brexit are encouraging.

First, the political earthquake is subsiding; we now have a new Prime Minister and cabinet. At the time of writing, the pound is up 3.4% since the beginning of the week, taking a cue from the political stability Theresa May’s appointment brings and the Bank of England’s decision to leave interest rates unchanged, at 0.5%. Second, the reaction of capital markets has not been out of the ordinary anyway. While the decline of sterling against the dollar and euro has been pronounced, at around 8% against the average of the three months preceding the referendum, this is broadly in line with our expectations – and somewhat less than some of the more aggressive scaremongering predictions. Remember, it was the fall in sterling in 1992 that resulted in an export-led boom; the same can happen now. Port Talbot steel plant has just become 8% more competitive, but for some reason the BBC don’t want to know.

Third, UK gilts have strengthened. The cost of borrowing has fallen by around 0.6 percentage points to 0.72 percentage points for UK 10-year gilts. The debt market anticipates that the Bank will cut rates in August, which has the direct effect of lowering the cost of bank borrowing and mortgages. We are now seeing the embryo of a mortgage price war. HSBC, for example, is now offering a two year fix at 0.99%. This is good news for a consumer driven economy. Fourth, the FTSE 100 continues to power ahead at the years’ all-time high and over 1,000 points higher than the February low. It has been one of the three very best performing markets in the world in 2016.

“They call them le sofferenze – the suffering. The imagery is striking, the thousands of sofferenze across Italy, unwanted and ignored, a problem unsolved. But despite the emotional name, these are not people. They are loans.”

• Italy’s Banking Crisis Will Shake The Eurozone To Its Core (Tel.)

They call them le sofferenze – the suffering. The imagery is striking, the thousands of sofferenze across Italy, unwanted and ignored, a problem unsolved. But despite the emotional name, these are not people. They are loans. Bad debts, draining banks of profits and undermining economic growth. The name is less clinical than the English term “non-performing loans”, a reflection of the Italian authorities’ emotional rather than business-like approach to the problem. None the less, the loans are indeed causing real suffering. The €360bn (£300bn) of sofferenze from Italian banks show borrowers are weighed down with debts they cannot afford, while the banks are struggling to offer new credit to the households and firms that need them.

When other countries such as the UK, Ireland and Spain ran into trouble, they bit the bullet and cleaned up their banks quickly. Italy did not. In a way, Italy’s authorities had good intentions. When loans turn bad and banks lose money, someone has to pay. It should be the banks’ investors, the shareholders and bondholders who take the risk of investing in return for the chance of profits. Unfortunately in Italy, households are keen investors in bank bonds, and would be badly burnt if they had to face up to those losses. So nothing was done. The bondholders have so far kept sight of their savings, and the banks have been allowed to ignore their bad loans. It saved the country some short-term pain, but the financial problems never went away.

Now they have spread to the wider economy, and are morphing into a political crisis with implications across the EU. It could bring down Italy’s government. If no compromise is reached between Rome, which wants to protect bondholders, and the EU, which wants to enforce the rules, it could even bring down the eurozone. “This could be a bigger risk than Brexit,” says a lawyer who is close to the situation. “The Greeks are desperate to be anchored into Europe, they are willing to suffer and suffer and suffer to stay in – I am not sure that Italy is willing to suffer.” The stakes are that high, and nobody knows whether the EU can muddle through another crisis, or if shock waves from Italy will split the union. Long nights and fraught nerves lie ahead.

Yeah, getting Wall Street involved in eurozone problems has proven to be a real good idea.

• Italy Hires JP Morgan To Hammer Out €50 Billion Bad Bank Bailout Plan (Tel.)

The Italian government is working on plans to set up a €50bn bad bank which would aim to clean up the country’s stricken lenders, the Sunday Telegraph has learned. It is understood that €10bn of public money could be used to buy bad loans at a knock-down price, taking assets with a face value of €50bn off the banks’ hands, allowing them to start giving out more good loans instead. The scheme, which is being put together by JP Morgan, could help clean up the banks, but also puts the country’s authorities on a collision course with the EU, which does not want taxpayers bailing out banks before private investors take a hit. Italy’s banks are labouring under €360bn of bad loans but have set aside funds to cover less than half of the associated losses.

This is dragging down the banks and the wider economy, and the government is keen to help recapitalise the institutions, restoring them to health and potentially boosting the economy by re-starting the provision of credit to households and firms. One key part of the bailout package is being built by the investment bankers, who envisage the government taking on some of the bad loans at a price of 20 cents in the euro. The state-backed entity would then work through the loans to either sell them onto other investors, hold them to maturity if there is a chance of borrowers paying them back, or offer debt relief if the customers are in such poor financial shape they cannot repay the loans.

The plan is not certain be implemented, in part because other ideas are also under discussion, but also because the Italian government is currently at loggerheads with the EU over the scheme. European rules state that private investors such as shareholders and bondholders have to pay up before the taxpayer does, in an effort to avoid a repeat of the bailouts of the financial crisis. Italy’s government does not want to inflict harm on the households across the country who invest their savings into those bonds. It hopes that this scheme to split the cost of recapitalisation between the government and the banks will show some thought has been given to the new rules, even if it does not fully comply.

Not everything adds up…

• Great Numbers! Curious Timing? (Rubino/ZH)

Pretend you’re running a corrupt government and something big and scary happens in another part of the world. Brexit, for instance. You’re quite naturally worried about the impact on your local economy and political system. What do you do? Well, one obvious thing would be to call the statisticians who compile your economic reports and tell them to fudge the next batch of numbers. [ZH:Notice the spike in macro data hit right as Brexit crashed markets… but bonds aren’t buying it…]

[ZH: And some more context for this sudden ramp in awesome data…]

Since you already do this prior to most major elections, they’re neither surprised by the request nor concerned with how to comply. They simply go into the black boxes that control seasonal adjustments or fabricate things like “hedonic quality” or “imputed rent,” and bump up the near-term levels. Later revisions will lower them to their true range but by that time, hopefully, the danger will have passed and no one will be paying attention. So…Brexit spooks the global markets and — surprise — some big economies report excellent numbers. Among them:

China’s GDP growth comes in at 6.7%, slightly better than expected

US retail sales pop by 0.6%, versus expectations of just 0.1%

US industrial output surges in June, led by autos

These are indeed really good numbers, and anyone looking solely at the headlines would have to conclude that the things the major governments have done lately are working. Nothing to see here folks, everything is fine. The experts have it covered. But a clearer, far less rosy picture emerges when you look at the numbers below the headlines, which are either harder to fudge because they’re calculated by private sector entities or are too obscure to be worth fudging. Industrial Production is in the middle of its longest non-recessionary slump in American history…

Business inventories, for instance, are a pretty good indicator of future activity, with high inventories implying slow growth (because factories have already produced plenty of stuff for the months ahead) and low inventories meaning the opposite (because factories will have to resupply their customers shortly). Here’s a chart from Zero Hedge showing “Business Inventories At Highest Level To Sales Since The Crisis”:

“…we must recognize and attempt to fully appreciate that global central banks are on a collective suicide mission.”

• A Historical Measurement Of The Insanity Of Central Bankers (Gordon)

One of the more preposterous deeds of modern central banking involves creating digital monetary credits from nothing and then using the faux money to purchase stocks. If you’re unfamiliar with this erudite form of monetary policy this may sound rather fantastical. But, in certain economies, this is now standard operating procedure. For example, in Japan this explicit intervention into the stock market is being performed with the composed tedium of a dairy farmer milking his cows. The activity is more art than science. Similarly, if you stop – even for a day – pain swells in certain sensitive areas. In late April, a Bloomberg study found that the Bank of Japan (BOJ), through its purchases of ETFs, had become a top 10 shareholder in about 90% of companies that comprise the Nikkei 225.

At the time, based on “estimates gleaned from publicly available central bank records, regulatory filings by companies and ETF managers, and statistics from the Investment Trusts Association of Japan,” Bloomberg assumed the BOJ was buying about 3 trillion yen ($27.2 billion) of ETFs every year. The rate of buying has likely accelerated since then. In fact, this week ZeroHedge reported, via Matt King of Citibank, that net global central bank asset purchases had surged to their highest since 2013. This seems to explain why, even with investors pulling money out of equity funds for 17 consecutive weeks, and at a pace that suggests a full flight to safety, stock markets are trading at all-time highs. In short, central banks are pumping “liquidity” into stock markets faster than investors are pulling their money out.

The main culprits, at the moment, are the BOJ and the ECB. Similar efforts may soon come from a central banker near you. Other than attempting to, somehow, boost the economy by levitating the stock market, the objective of this explicit central banking intervention is unclear. The popular theory seems to be that the “wealth effect” of inflated asset prices stimulates demand in the economy. The premise, as we understand it, is supposed to play out along the following narrative…or a derivative thereof. An economic boom ensues. [..].. we must recognize and attempt to fully appreciate that global central banks are on a collective suicide mission. They think that printing money and buying stocks will save us from ourselves. In practice, this means that before stocks melt down we could be treated to the grand spectacle of an epic melt up; a historical measurement of the insanity of central bankers.

Elvira Nabiullina is an actual central banker, who tries to do what’s best for the country.

• Russia Purges Its Banking Industry (BBG)

After felling more than a quarter of its banks, Russia wants to make sure the survivors get more than a slap on the wrist for flouting the rules. As part of its campaign against money laundering, the Bank of Russia is taking a page from the playbooks of regulators in the U.S. and Europe. It’s now planning to reduce the reporting requirements on lenders while increasing the punishment for getting caught, Deputy Governor Dmitry Skobelkin said in an interview in Moscow. “We are prepared to reconsider that approach,” Skobelkin said. “But in that case we need to raise responsibility proportionally.”

Unlike the billions of dollars in penalties imposed for infractions on U.S. and European banks, Russia hasn’t leaned heavily on fines during an unsparing purge of the industry by Governor Elvira Nabiullina. Even after reducing what it calls illegal capital flight to 64 billion rubles ($1 billion) in the first quarter, less than than half the level a year earlier, the Bank of Russia is asking lenders to commit to cutting operations that have hallmarks of money laundering by 20% every quarter, according to Skobelkin. The financial industry is fighting a crisis as asset quality worsens during the second year of recession, the longest since President Vladimir Putin came to power.

Regulators have been hunting down banks deemed mismanaged or under-capitalized, with Nabiullina shutting down more than 250 banks since her appointment in 2013 to restore the system to health. With the closures, the number of banks suspected of a large share of dubious transactions has fallen to five at the end of the first quarter from 150 in mid-2013, Skobelkin said. The regulator defines “dubious operations” as fake trades or loans used to move money abroad.

China will struggle, period.

• China Will Struggle To Maintain Growth Pace For Wages (R.)

Wages in China kept pace with economic growth in the first half of 2016 but maintaining that will be difficult, the country’s statistics bureau said on Sunday. It cited issues such as overcapacity in China’s coal and steel sectors as well as some declining agricultural prices as taking a toll on salaries. Maintaining the relationship between the pace of growth and that of wage increases is a challenge requiring “close attention”, Wang Pingping, head of the National Bureau of Statistics’ (NBS) household survey office said, according to the bureau’s website. Disposable household income, adjusted for inflation, rose 6.5% in the first half of the year, compared with economic growth of 6.7%, the statistics bureau reported on July 15.

Economic growth in the second quarter was faster than expected as a government spending spree and housing boom boosted industrial activity, but a slump in private investment growth points to a loss of momentum later this year. Several Chinese provinces have slowed or halted increases to minimum wages, as companies face pressure from rising expenses and weakening demand. China’s human resources vice minister this month called for a slowdown in wage increases in order to maintain competitiveness. China plans to allocate 100 billion yuan ($14.96 billion) to help local authorities and state-owned firms finance layoffs in the steel and coal sectors this year and in 2017.

More struggle, but of a different kind.

• Homebuilders Struggle To Keep Up With Canada Boom (R.)

The housing boom in Canada’s hottest cities has spilled over into the suburbs, where builders say they are working as fast as they can to meet soaring demand and get homes to market before a much-feared housing bust. With the supply of existing homes at a six-year low and the average price up 11.2% from a year ago, according to data released on Friday, new developments have become the next frontier in a what some fear is a housing bubble. Canadian new home prices rose 0.7% in May, the largest monthly increase since 2007, Statistics Canada said on Thursday. Builders with decades of experience say they have not seen anything like it, and are eager to build while the boom lasts.

“It’s definitely ‘Build as quickly as possible and get your pre-sales out,'” said Robert de Wit, chief executive of the Greater Vancouver Home Builders’ Association. But with land prices rising as quickly as home prices, builders are paying a lot of money now for land that may not have a house on it to sell for two years. “They are gambling. They are taking a calculated risk. They are buying the land at prices that anticipate future prices going up,” de Wit said. Builders say it is a challenge to find enough skilled tradespeople to do the work, while entire developments sell out within days of being advertised – months before construction even begins. “It’s scary to try to figure out what’s going on with the marketplace,” said Heather Weeks, marketing manager at Rosehaven Homes, which builds in the outskirts of Toronto.

What you get when a government relies on bubbles to look good.

• Bank of Mum and Dad Is Now Paying The Rent, Too (Ob.)

The Bank of Mum and Dad – the lender of last resort for their grown-up children unable to afford a deposit to buy a home – has moved into the private rentals market. The country’s housing crisis has become so acute that parents are now having to subsidise their children’s rent to the tune of £1bn a year. Research by the housing charity Shelter says that 450,000 adults need help from their parents to keep them in their rented home. An analysis of almost 4,000 adult people who rent carried out by YouGov suggests that more than one in 20 have either borrowed or received money from their parents this year to pay their rent or help them with moving costs.

Younger people are particularly reliant on their parents for help, with 11% of those aged 18-24, and 8% of those aged 25-34, receiving financial support. Shelter estimates that this amounts to about £850m a year on rent and £150m a year on moving costs. “With housing costs sky high it’s not surprising that the Bank of Mum and Dad is no longer just relied on for help with buying a home, but renting costs too,” said Campbell Robb, Shelter’s chief executive. “We know that the majority of private renters are forking out huge proportions of their income to cover the rent each month, and that’s not even taking into account the extortionate deposits and fees that need to be paid.”

Almost 150,000 renting households in England were at risk of losing their home in the past year – some 350,000 people, says Shelter. “For those who aren’t lucky enough to receive help from parents, expensive and unstable private renting leaves many struggling,” Robb said. “We hear from people every day who simply can’t keep up with rising rents on where to live.” [..] The problem is particularly serious in London, where Shelter claims 54% of private renters are struggling to pay. Government figures show rents rose by 19% in London in the past five years. And while the average for a two-bedroom flat in the capital is now more than £1,600 a month, wages have not kept pace.

Wonderful. Hudson always is.

• A Travesty of Financial History (Michael Hudson)

Debt mounts up faster than the means to pay. Yet there is widespread lack of awareness regarding what this debt dynamic implies. From Mesopotamia in the third millennium BC to the modern world, the way in which society has dealt with the buildup of debt has been the main force transforming political relations. Financial textbook writers tell happy-face fables that depict loans only as being productive and helping debtors, not as threatening social stability. Government intervention to promote economic growth and solvency by writing down debts and protecting debtors at creditors’ expense is accused of causing an economic crisis (defined as bankers and bondholders not making as much money as they thought they would).

Creditor lobbyists are not eager to save indebted consumers, businesses and governments from bankruptcy and foreclosure. The result is a biased body of analysis, which some extremists project back throughout history. The most recent such travesty is William Goetzmann’s Money Changes Everything, widely praised in the financial press for its celebration of finance through the ages. A Professor of Finance and Management at the Yale School of Management, he credits “monetization of the Athenian economy” – the takeoff of debt – as playing “a central role in the transition to … democracy”, and assures his readers that finance is inherently democratic, not oligarchic: “The golden age of Athens owes as much to financial litigation as it does to Socrates”.

That litigation consisted mainly of creditors foreclosing on the property of debtors. Goetzmann makes no mention of how Solon freed Athenians from debt bondage with his seisachtheia (“shaking off of burdens”) in 594. Also airbrushed out of history is the subsequent buildup of financial oligarchies throughout the Mediterranean. Cities of the Achaean League called on Rome for military intervention to prevent Sparta’s kings Agis, Cleomenes and Nabis from cancelling debts late in the third century BC.

Violence has often turned public policy in favor of debtors, despite what philosophers and indeed most people believed to be fair, just and stable. Rome’s own Social War opened with the murder of supporters of the pro-debtor Gracchi brothers in 133 BC. By the time Augustus was crowned emperor in 29 BC, the die was cast. Creditor elites ended up stifling prosperity, reducing at least 15% (formerly estimated as a quarter) of the Empire’s population to bondage. The Roman legal principle placing creditor rights above the property rights of debtors has been bequeathed to the modern world.

Hope they don’t conclude it’s about money.

• One of India’s Poorest States Just Created a Happiness Ministry (BBG)

A central Indian state that ranks among the nation’s least developed will set aside 38 million rupees ($567,000) to study how to make its people happy. The cabinet in Madhya Pradesh – home to India’s famous Khajuraho temples and the national park where Rudyard Kipling set his Jungle Book – on Friday approved setting up the department. It will conduct research and prepare plans to measure and enhance its citizens’ wellbeing, according to the government’s website. Increasing growth and prosperity among India’s poorest states – which hold the bulk of the nation’s population – is crucial for Prime Minister Narendra Modi to retain power with elections due 2019. India ranks 118 of 156 in the World Happiness Report 2016, behind Pakistan, Serbia and Ethiopia.

“The largest regional drop was in South Asia, in which India has by far the largest population share,” the report stated. Five input variables – per capita income, life expectancy, freedom to make life choices, generosity, and freedom from corruption – improved for India but were offset by a fall in social support. With analysts questioning the credibility of statistics in the world’s fastest-growing big economy, social indicators stand to be increasingly used to measure progress. Madhya Pradesh, which calls itself the heart of India, was ranked among the bottom three in social indicators by a panel appointed by the federal government in 2013. Its per capita income is among the lowest for an Indian state.

Debt Rattle January 31 2016

Jan 312016

January 31, 2016 Posted by Raúl Ilargi Meijer at 10:07 am Finance Tagged with: children, China, GDP, happiness, IPO, Japan, milk, morals, refugees, yen, yuan 2 Responses »

Edwin Rosskam Shoeshine, 47th Street, Chicago’s main Negro business street 1941

• A Chinese Banker Explains Why There Is No Way Out (ZH)

• China GDP Growth 4.3%, Or Lower, Chinese Professor Says (WSJ)

• Yuan Vs. Yen: How China Figures Into Japan’s Negative Rates (WSJ)

• IPO Market Comes to a Standstill (WSJ)

• Greece’s Lenders To Start Bailout Review On Monday (Reuters)

• Milk Collapse Brings a 45% Pay Cut to England’s Dairy Farmers (BBG)

• ‘Peak Stuff’ And The Search For Happiness (Guardian)

• Merkel Says Refugees Must Return Home Once War Is Over (Reuters)

• 10,000 Refugee Children Are Missing, Says Europol (Observer)

• Aegean Sea Refugee Crossings Rise 35 Fold Year-On-Year In January (Guardian)

• Greeks Worry Threatened Closure Of EU Border ‘Definition Of Dystopia’ (Guar.)

• Europe’s Immigration Bind: Morals vs Votes (Guardian)

• 39 Greece-Bound Refugees Drown Off Turkish Coast (AP)

“It’s not difficult to issue more loans, but let’s say in a years time when the loan is due, if the borrower defaults, then I won’t just see a pay cut, I’ll be fired, and still be responsible for loan recovery.”

• A Chinese Banker Explains Why There Is No Way Out (ZH)

Friday’s adoption of NIRP by Japan, which send the US Dollar soaring, has only made any upcoming future Chinese devaluation even more likely. But whether China devalued or not, one thing is certain: it is next to impossible for China – under the current socio economic and financial regime – to stop the relentless growth in NPLs, which even by conservative estimates at in the trillion(s), accounting for at least 10% of China’s GDP. Sure enough, a cursory skimming of news from China reveals that even Chinese bankers now “admit the NPL situation is dire, but will keep on lending” anyway. As the Chiecon blog notes, NPL “ratios might be closer to 10%… supported by revelations in this article, where Chinese bankers complain of missing performance targets, spiraling bad loans, and end of year pay cuts.”

“Right now, we’ve nowhere to issue new loans” said Mr. Zhang, a general manager in charge of new loans at one of the listed commercial bank branches. Zhang believes NPL ratios have yet to peak, with SME loans the worst hit area. Ironically this has forced Zhang to direct lending back to the LGFVs, property developers and conglomerates, industries which the Chinese government had previously instructed banks to restrict lending to, based on oversupply and credit risk fears.

But the main reason why China is now trapped, and on one hand is desperate to stabilize its economy and stop growing its levereage at nosebleed levels, while on the other hand it is under pressure to issue more loans while at the same time it is unwilling to write off bad loans, can be found in the following very simple explanation offered by Mr. Zhou, a junior banker at a Chinese commercial bank.

“If I don’t issue more loans, then my salary isn’t enough to repay the mortgage, and car loan. It’s not difficult to issue more loans, but let’s say in a years time when the loan is due, if the borrower defaults, then I won’t just see a pay cut, I’ll be fired, and still be responsible for loan recovery.”

And that, in under 60 words, explains why China finds itself in a no way out situation, and why despite all its recurring posturing, all its promises for reform, all its bluster for deleveraging, China’s ruling elite will never be able to achieve an internal devaluation, and why despite its recurring threats to crush, gut and destroy all the evil Yuan shorts, ultimately it will have no choice but to pursue an external devaluation of its economy by way of devaluing its currency presumably some time before its foreign reserves run out (which at a $185 billion a month burn rate may not last for even one year). However, before it does, it will make sure that it also crushes every Yuan short, doing precisely what the Fed has done with equity shorts in the US over the past 7 years.

While still ‘assuming the official agriculture and service sector growth figures are correct’.

• China GDP Growth 4.3%, Or Lower, Chinese Professor Says (WSJ)

As growth in the world’s second-largest economy slows, the spotlight has intensified over the accuracy of China’s growth figures. This week, Xu Dianqing, an economics professor at Beijing Normal University and the University of Western Ontario, joined the debate with an estimate that China’s GDP growth rate might just be between 4.3% and 5.2%. China’s official growth rate in 2015 was 6.9%, the slowest pace in more than two decades, allowing the government to hit its target of around 7%. But longstanding questions over China’s statistical methodology have spurred a cottage industry in alternate growth indicators. Many of these analyze other measures believed to be less subject to political pressure in estimating actual growth, including indices compiled by economists at Capital Economics, Barclays Bank, the Conference Board and Oxford Economics.

Most peg China’s annual growth in the 4% to 6% range. Mr. Xu told reporters at a briefing this week that the focus of his concern is the growth rate for China’s manufacturing sector, which according to official figures grew 6.0% last year and accounts for 40.5% of the economy. A closer look at underlying indicators, however, including thermal power generation, railway freight volume, and output from the iron ore, plate glass, cement and steel industries released monthly by the National Bureau of Statistics paint a different picture, he said. Of some 60 major industrial products, nearly half saw output contract in the January to November period, while railway cargo volume fell 11.9% for all of last year, according to official sources.

Given weaker industrial output in China and more than three years of industrial deflation, a 6% expansion for manufacturing in 2015 is questionable “no matter how the number is counted,” said Mr. Xu, who added that he believes it’s more probable that industry and construction grew at most by 2% last year and perhaps not at all. That translates into economic growth that tops out at 5.2% last year and perhaps something in the 4s, assuming the official agriculture and service sector growth figures are correct, he said. Mr. Xu said it’s unlikely that the service sector– sometimes cited as an explanation for growth rate discrepancies – did better than reported by authorities.

Twins.

• Yuan Vs. Yen: How China Figures Into Japan’s Negative Rates (WSJ)

Japan’s move to negative interest rates is the latest step in a dangerous dance between the world’s second and third largest economies. The problem is currencies. China’s moves to bring down the value of the yuan have rattled markets this year, sparking a flight from risky assets that has sent investors into safer havens like the yen. The stronger yen in turn has threatened to tip Japan’s economy back into deflation, which the central bank has struggled to vanquish. The rising yen has also put more pressure on corporate profits and helped push Japanese stocks into bear market territory last week. So when the Bank of Japan announced its plan to lower interest rates below zero for the first time Friday, it makes sense that Governor Haruhiko Kuroda named just one country among the risks facing its economy China.

Now it’s China s turn to sweat. The yen fell as much as 2.1% after the announcement, which will make Chinese exports more expensive relative to Japanese products. The two countries, and most of their neighbors, are struggling against a tide of money outflows and weak trade. While governments in the rest of Asia have far more room to stimulate their economies than Japan does, a decline in the yen could spur them to try to push down their own currencies. Were China to follow and the central bank has already allowed the yuan to fall it would ignite another round of fear, which could push up the yen and force the Bank of Japan to act again. So far, the yen’s ups and downs have left it about where it was a year ago, so the risk of a cycle of competitive devaluation is limited.

In addition, the drop in the yen would have been a bigger problem for China when the yuan was pegged to the dollar. The government’s recent switch to a basket of currencies that includes the yen means the move up won’t be as big. But it still will push the currency in the wrong direction for the slowing economy. There’s another reason China does’ t want the yen to fall. Right now, thousands of Chinese are planning their Lunar New Year’s holidays in Japan early next month, hoping to take advantage of the cheap yen. During the October Golden Week, China’s other big travel week of the year, Chinese tourists descended on Japan, spending more than $830 million on shopping, according to the state-run China Daily.

China is suffering an epic capital flight in which hundreds of billions of dollars are leaving the country. A weaker yen will send more Chinese into Tokyo’s department stores and further drain China’s currency reserves. The economic fates of China and Japan are closely connected. Until their economies get on stronger footing, moves to boost growth in one country could hurt the other and risk retaliation. As the world economy stays weak, the interaction between China and Japan could play an increasingly important role both in Asia and globally.

Zero.

• IPO Market Comes to a Standstill (WSJ)

A frigid January for initial public offerings is pointing to a hard winter for fledgling biotechnology firms and other private companies. There were no U.S. IPOs in January, the first such month since the eurozone crisis in September 2011, according to data provider Dealogic. Investors and analysts attribute the dearth to the global stock-market rout of the first two weeks of the year, which signaled a broad retreat from risk by investors. If sustained, the reversal threatens to send ripples through global financial markets. Many analysts and traders view a healthy IPO sector as a necessary precondition for a sustainable advance in the broad stock indexes, as dozens of private companies have built their plans around raising cash in the public markets.

In recent years, markets were “wide open and companies that wanted to raise capital could,” said Eddie Yoon, portfolio manager of the Fidelity Select Health Care Portfolio, with $9 billion in assets. But now some companies, both public and private, could face being shut out for an extended period, as many investors seek to reduce risk by focusing on firms with histories of steady profitability and revenue growth. Several new share offerings by already-public biotech companies have floundered this year, not only pricing at steep discounts, but also falling even further the session after pricing. So far this year, new-share offerings by biotech companies have dropped 15% from the time of the announcement of the deal to the end of trading after the sale, according to data from Dealogic. “If the market does reopen, it will be for higher quality companies,” said Mr. Yoon.

France wants debt relief?!

• Greece’s Lenders To Start Bailout Review On Monday (Reuters)

Greece’s official lenders will start a review on Monday of what progress the country has made in implementing the economic reforms agreed under its third bailout, a necessary step towards debt relief talks, a finance ministry official said on Saturday. Greece’s international lenders are the IMF and the euro zone bailout fund. The reforms that Greece has to implement in exchange for loans are also reviewed by the ECB and the European Commission. “The first phase will last a few days as there will be a break at the end of next week, after which the institutions will return to conclude the negotiations,” the official said, declining to be named. Athens is keen for a speedy completion of the review, which was expected to begin late last year, and hopes a positive outcome will help boost economic confidence and liquidity.

To secure a positive result from the review Athens needs to pass legislation on pension reforms to render its social security system viable, set up a new privatization fund and come up with measures to attain primary budget surpluses for 2016-2018. A successful conclusion of the performance review will open the way for debt relief talks. The head of the bailout fund, the European Stability Mechanism (ESM), has ruled out a haircut for Greece’s debt but extending debt maturities and deferring interest are options that could be used to make it more manageable. French Finance Minister Michel Sapin told Kathimerini debt relief talks must start soon to help restore Greece’s financial stability. “France’s view is that the sooner the first review is completed, the faster we will be able to tackle the issue of debt sustainability and this will be better for everyone – for Greece as well as the entire euro zone,” Sapin told the paper.

Stories from NZ have been bad for a while now.

• Milk Collapse Brings a 45% Pay Cut to England’s Dairy Farmers (BBG)

England’s dairy farmers will see income fall by almost half this year, evidence that the global milk crisis is far from over. Earnings will average 46,500 pounds ($66,500) per farm in England for the 2015-16 season that started in March, the Department for Environment, Food & Rural Affairs said in a report Thursday. That figure, which includes European Union aid payments, is 45 percent below the prior season and the lowest in 9 years. Dairy farmers across Europe are struggling with a collapse in prices after a global oversupply of milk was compounded by slowing demand in China and Russia’s ban on EU dairy in retaliation for sanctions.

Protests over low prices broke out in France this week as more than 100 farmers, many of them livestock breeders, blocked roads and used tractors and burning tires to stop access to the port city La Rochelle. “There’s too much milk in the world,” said Robbie Turner, head of European markets at Rice Dairy International, a risk management advisory firm in London. “There are people who are hard for cash,” and prices are likely to remain low for at least the next six months, he said. On Thursday, Fonterra, the world’s largest dairy exporter, cut its milk price forecast to a nine-year low. The Auckland-based company doesn’t expect a sharp recovery in Chinese demand any time soon.

Luckily we’re maxed out.

• ‘Peak Stuff’ And The Search For Happiness (Guardian)

On Monday, Walmart will start paying a minimum of $10 an hour to its 1.4 million skilled staff in America – in conventional economists’ terms, a ludicrous and unnecessary transfer of income from capital to labour. But, facing the same retail environment as Apple and Ikea, Walmart wants to motivate its frontline staff into being more engaged and innovative. Consumers want some help in understanding and interpreting their particularities, help in answering the question of what, in a profound sense, their spending is for. When you have enough, what need is being served by having more?

Economists are not equipped to address such phenomena. Faltering growth in consumer demand in all western countries is understood wholly in traditional economic terms: the story is that consumers are indebted and uncertain, they lack confidence and want to rebuild their savings. Rightwing, anti-state economists, so influential in the Republican and Conservative parties, peddle tax cuts as the universal panacea. Like Pavlov’s dog, consumers will flock back to the shops once they are emboldened by a tax cut. Obviously, there would be some increase in spending, but far less than there used to be. More fundamental forces are holding back spending .

There is a quest for meaning, aided and abetted by the knowledge and information revolutions, that is not answered by traditionally scale-produced goods and services. Economist Tomas Sedlacek, who has won an international following for his book Economics of Good and Evil, insists that contemporary societies have become slaves to a defunct economistic view of the world. When western societies were poorer, it was reasonable for economics to focus on how to produce more stuff – that was what societies wanted. Now, the question is Aristotelian: how to live a happy life – or “humanomics”, as Sedlacek calls it. Aristotle was clear: happiness results from deploying our human intelligence to act creatively on nature. To inquire and successfully to quest for understanding is the root of happiness.

Yet most people today, says Sedlacek, work in jobs they do not much like, to buy goods they do not much value – the opposite of any idea of the good life, Aristotelian or otherwise. What we want is purpose and a sense of continual self-betterment, which is not served by buying another iPhone, wardrobe or a kitchen. Yet purpose and betterment need a social context: purpose is a shared endeavour and self-betterment is to act on the world better with others. An individualistic society such as our own makes it much harder to find others with whom to make common cause.

Well, stop the war then.

• Merkel Says Refugees Must Return Home Once War Is Over (Reuters)

German Chancellor Angela Merkel tried on Saturday to placate the increasingly vocal critics of her open-door policy for refugees by insisting that most refugees from Syria and Iraq would go home once the conflicts there had ended. Despite appearing increasingly isolated, Merkel has resisted pressure from some conservatives to cap the influx of refugees, or to close Germany’s borders. Support for her conservative bloc has slipped as concerns mount about how Germany will integrate the 1.1 million migrants who arrived last year, while crime and security are also in the spotlight after a wave of assaults on women in Cologne at New Year by men of north African and Arab appearance.

The influx has played into the hands of the right-wing Alternative for Germany (AfD), whose support is now in the double digits, and whose leader was quoted on Saturday saying that migrants entering illegally should, if necessary, be shot. Merkel said it was important to stress that most refugees had only been allowed to stay for a limited period. “We need … to say to people that this is a temporary residential status and we expect that, once there is peace in Syria again, once IS has been defeated in Iraq, that you go back to your home country with the knowledge that you have gained,” she told a regional meeting of her Christian Democratic Union (CDU) in the state of Mecklenburg-Western Pomerania.

Merkel said 70 percent of the refugees who fled to Germany from former Yugoslavia in the 1990s had returned. Horst Seehofer, leader of the Christian Social Union (CSU), the CDU’s Bavarian sister party, has threatened to take the government to court if the flow of asylum seekers is not cut. Merkel urged other European countries to offer more help “because the numbers need to be reduced even further and must not start to rise again, especially in spring”. Fabrice Leggeri, the head of the European Union’s border agency Frontex, said a U.N. estimate that up to a million migrants could try to come to Europe via the eastern Mediterranean and Western Balkans next year was realistic. “It would be a big achievement if we could keep the number … stable,” he told the magazine Der Spiegel.

Europe doesn’t care for kids.

• 10,000 Refugee Children Are Missing, Says Europol (Observer)

At least 10,000 unaccompanied child refugees have disappeared after arriving in Europe, according to the EU’s criminal intelligence agency. Many are feared to have fallen into the hands of organised trafficking syndicates. In the first attempt by law enforcement agencies to quantify one of the most worrying aspects of the migrant crisis, Europol’s chief of staff told the Observer that thousands of vulnerable minors had vanished after registering with state authorities. Brian Donald said 5,000 children had disappeared in Italy alone, while another 1,000 were unaccounted for in Sweden. He warned that a sophisticated pan-European “criminal infrastructure” was now targeting refugees.

“It’s not unreasonable to say that we’re looking at 10,000-plus children. Not all of them will be criminally exploited; some might have been passed on to family members. We just don’t know where they are, what they’re doing or whom they are with.” The plight of unaccompanied child refugees has emerged as one of the most pressing issues in the migrant crisis. Last week it was announced that Britain would accept more unaccompanied minors from Syria and other conflict zones. According to Save the Children, an estimated 26,000 unaccompanied children entered Europe last year. Europol, which has a 900-strong force of intelligence analysts and police liaison officers, believes 27% of the million arrivals in Europe last year were minors.

“Whether they are registered or not, we’re talking about 270,000 children. Not all of those are unaccompanied, but we also have evidence that a large proportion might be,” said Donald, indicating that the 10,000 figure is likely to be a conservative estimate of the actual number of unaccompanied minors who have disappeared since entering Europe. In October, officials in Trelleborg, southern Sweden, revealed that some 1,000 unaccompanied refugee children who had arrived in the port town over the previous month had gone missing. On Tuesday a separate report, again from Sweden, warned that many unaccompanied refugees vanished and that there was “very little information about what happens after the disappearance”.

But they think they can stop it.

• Aegean Sea Refugee Crossings Rise 35 Fold Year-On-Year In January (Guardian)

More than 52,000 refugees and migrants crossed the eastern Mediterranean to reach Europe in the first four weeks of January, more than 35 times as many as attempted the crossing in the same period last year. The daily average number of people making the crossing is nearly equivalent to the total number for the whole month of January as recently as two years ago, according to the International Organisation for Migration. More than 250 people have died attempting to make the crossing this month, including at least 39 who drowned in the Aegean Sea on Saturday morning after their boat capsized between Turkey and Greece. Turkish coastguards rescued 75 others from the sea near the resort of Ayvacik on Saturday, according to the Anadolou news agency.

They had been trying to reach the Greek island of Lesbos. The eastern route into Europe, via Greece, has overtaken the previously popular central Mediterranean route from north Africa over the past year. Refugees have continued to use the route all winter, despite rough seas and strong winds. “An estimated 52,055 migrants and refugees have arrived in the Greek islands since the beginning of the year,” the IOM said. “This is close to the total recorded in the relatively safe month of July 2015, when warm weather and calm seas allowed 54,899 to make the journey.” Turkey, which is hosting at least 2.5 million refugees from the civil war in neighbouring Syria, has become the main launchpad for migrants fleeing war, persecution and poverty.

Ankara struck a deal with the EU in November to halt the flow of refugees, in return for €3bn (£2.3bn) in financial assistance to help improve the refugees’ conditions. This week the IOM reported that a survey of migrants and refugees arriving in Greece showed 90% were from Syria, Iraq or Afghanistan. People of those nationalities are allowed to leave Greece and enter Macedonia en route to western Europe as asylum seekers. But on Wednesday the Idomeni border crossing from Greece to Macedonia remained closed from midday to midnight. Macedonian officials blamed congestion at the border with Serbia.

“Why is Greece guilty? Because it doesn’t let them drown?”

• Greeks Worry Threatened Closure Of EU Border ‘Definition Of Dystopia’ (Guar.)

With Brussels contemplating drastic measures to stem the flow, calls are mounting to seal the Greek-Macedonian border, raising fears of hundreds of thousands being stranded in Greece, the country now perceived to be the continent’s weakest link. The prospect of migrants being trapped in a member state that financially is also Europe’s most fragile may once have seemed extreme, even absurd. Its economy ravaged by six years of internationally mandated austerity and record levels of unemployment, Greece’s coping strategies are markedly strained. But as EU policymakers seek ever more desperate ways to deal with what has become the largest mass movement of people since the second world war, it is an action plan being actively worked on by mandarins at the highest level.

Like so much else in the great existential crisis facing Europe, a proposed policy that was once seen as bizarre now looks like it could become real. Last week Athens was also given a three-month ultimatum to improve the way it processes arrivals and polices its borders – at nearly 8,700 miles the longest in Europe – or face suspension from the passport-free Schengen zone. Closure of the Greek-Macedonian frontier would effectively cut it out of that fraternity. Those who have watched Greece’s rollercoaster struggle to keep insolvency at bay are united in their conviction that the move would be catastrophic. “It would place a timebomb under the foundations of Greece,” says Aliki Mouriki at the National Centre of Social Research. “Hundreds of thousands of refugees trapped in a country that is bankrupt, that has serious administrative and organisational weaknesses, with a state that is unable to provide for their basic needs?”

The question hangs in the air while she searches for the right word. “What we would witness,” she adds, “would be the definition of dystopia.” Like the mayors who have been forced to deal with the emergency on Greece’s eastern Aegean isles, federal politicians believe Turkey is the root of the problem. “With all due respect for a country that is hosting 2 million refugees, it is Turkey that must do something to stop the organised crime, the smugglers working along its coast,” Yannis Mouzalas, the minister for migration policy, told the Observer. “These flows are not Greece’s fault even if, it is true, we have been slow to set up hotspots and screening was not always what it should have been,” he said. “It is Turkey that turns a blind eye to them coming here. It is Turkey that must stop them. Why is Greece guilty? Because it doesn’t let them drown?”

Morals? Europe?

• Europe’s Immigration Bind: Morals vs Votes (Guardian)

The dream of free movement within the EU has also spawned paranoia about the movement of people into the EU. The quid pro quo for Schengen has been the creation of a Fortress Europe, a citadel against immigration, watched over by a hi-tech surveillance system of satellites and drones and protected by fences and warships. When a journalist from Germany’s Der Spiegel magazine visited the control room of Frontex, the EU’s border agency, he observed that the language used was that of “defending Europe against an enemy”. Many of the policies enacted over the past year give a sense of a continent at war. In June, an emergency EU meeting came up with a 10-point plan that included the use of military force “to capture and destroy” the boats used to smuggle migrants.

Soon afterwards, Hungary and other east European countries began erecting razor-wire fences. Germany, Austria, France, Sweden and Denmark suspended Schengen rules and reintroduced border controls. In November, the EU struck a deal with Turkey, promising it up to $3.3bn in return for clamping down on its borders. This month, Denmark passed a law allowing it to seize valuables from asylum seekers to pay for their upkeep. Despite the sense that the crisis is unprecedented, there is nothing new in it or the incoherence of the EU’s response. People have been trying to enter the EU, and dying in the attempt, for a quarter of a century and more.

Until 1991, Spain had an open border with North Africa. Migrant workers would come to Spain for seasonal work and then return home. In 1986, the newly democratic Spain joined the EU. As part of its obligations as a EU member, it had to close its North African borders. Four years after it did, it was admitted into the Schengen group. The closing of the borders did not stop migrant workers trying to enter Spain. Instead, they took to small boats to cross the Mediterranean. On 19 May 1991, the first bodies of clandestine migrants were washed ashore. Since then, it is estimated that more than 20,000 people have perished in the Mediterranean while trying to enter Europe.

Every day.

• 39 Greece-Bound Refugees Drown Off Turkish Coast (AP)

Turkey’s state-run news agency says at least 39 people, including five children, have drowned in the Aegean Sea after their Greece-bound boat capsized off the Turkish coast. Anadolu Agency says coast guards rescued 75 others from the sea Saturday near the resort of Ayvacik en route to the Greek island of Lesbos. The agency has identified the survivors as natives of Afghanistan, Syria and Myanmar. The International Organization for Migration says 218 people have died this year while trying to cross by sea from Turkey to Greece. Turkey is hosting an estimated 2.5 million refugees from Syria. In November, Turkey agreed to fight smuggling networks and stem the flow of migrants into Europe. In return, the EU has pledged €3 billion to help improve the refugees’ conditions.

Debt Rattle October 29 2014

Oct 292014

October 29, 2014 Posted by Raúl Ilargi Meijer at 11:41 am Finance Tagged with: boom, China, consumer, corruption, Fed, happiness, kiwi, oil, payday, pope, population, QE, reef 5 Responses »

Russell Lee Photo booth at fiesta, Taos, New Mexico Jul 1940

• Fed Set To End One Crisis Chapter Even As Global Risks Rise (Reuters)

• How American QE Has Changed The World (Telegraph)

• The Biggest Risk For US Investors Is A China Crash (MarketWatch)

• Is China’s Export Boom Fake? (CNBC)

• Another Reason Not to Trust China’s Economic Data (BW)

• China Shadow Banking Shifted to Insurers Alarms Moody’s (Bloomberg)

• US Homeownership Rate Drops To 1983 Levels (Zero Hedge)

• Why British Interest Rates Will Never Go Up Again (MarketWatch)

• EU Financial Transaction Tax Bid Falters on Revenue Disagreement (Bloomberg)

• UK Faces ‘Debt Timebomb’ From Ageing Population (Telegraph)

• Payday Loan Brokers Regularly Raid Bank Accounts Of Poor Customers (Guardian)

• Dubai Insists the Boom is Not a Bubble This Time Around (Bloomberg)

• Chinese Oil Trader Buys Record Number of Mideast Cargoes (Bloomberg)

• Rajoy Apologizes as New Wave of Corruption Allegations Hits Spain (Bloomberg)

• How The Consumer Dream Went Wrong (BBC)

• Gross National Happiness – Can We Measure A Feelgood Factor? (Guardian)

• Australia Protection Plan ‘Will Not Save Great Barrier Reef’ (BBC)

• Blame The Cows: Kiwi Dollar May Stumble (CNBC)

• Russia to Send 3,000 Tons of Aid to Eastern Ukraine Within Week (RIA)

• Pope Francis: Evolution and Big Bang Theory Are Real (NBC)

• Population Controls ‘Will Not Solve Environment Issues’ (BBC)

Mission accomplished.

• Fed Set To End One Crisis Chapter Even As Global Risks Rise (Reuters)

– The U.S. Federal Reserve on Wednesday is expected to shutter its bond-buying program, closing one controversial chapter in its crisis response even as it struggles to manage a full return to normal monetary policy. The Fed is likely to announce at the end of a two-day meeting that it will no longer add to its holdings of Treasury bonds and mortgage-backed securities, halting the final $15 billion in monthly purchases under a program that at its peak pumped $85 billion a month into the financial system. An important symbolic step, the end of the purchases still leaves the Fed far from a normal posture.

Its balance sheet has swollen to more than $4 trillion, interest rates remain at zero, and, if anything, recent events have increased the risk the U.S. central bank may need to keep propping up the economy for longer than had been expected just a few weeks ago. The statement the Fed will issue at 2 p.m. will be read carefully for signs of how weak inflation, ebbing global growth and recent financial market volatility have influenced U.S. policymakers. There is no news conference scheduled after the meeting and no fresh economic forecasts from Fed officials. “They are worried about the economy, the global one,” and are likely to leave much of their language intact rather than signal progress towards a rate hike, Morgan Stanley analyst Vincent Reinhart wrote in a preview of the meeting.

Attention will focus on whether the Fed’s statement continues to refer to “significant” slack in the U.S. labor market, and whether it retains language indicating rates will remain low for a “considerable time,” as most economists expect. Paul Edelstein, director of financial economics at IHS Global Insight, said the Fed may also need to acknowledge the inflation outlook is weakening. “They have been kind of wrong about inflation lately,” Edelstein said. “It would behoove them to do something – signal to markets they are not going to tolerate inflation and inflation expectations persistently below 2%.” Fed officials have largely stuck to forecasts that the U.S. economy will grow around 3% this year, with inflation poised to move gradually back to their 2% goal.

It has perverted just about all global economies for the benefit of banks and elites. As I said yesterday, perhaps that’s a touch of genius.

• How American QE Has Changed The World (Telegraph)

The Federal Reserve is widely expected to end its asset purchasing programme today. If so, it will be a quiet end to one of the most radical monetary policy experiments in modern times. Since the financial crisis, the world’s biggest central bank has embarked on an unprecedented programme of asset purchases that has resulted in its balance sheet growing to more than $4.45 trillion. Under the most recent incarnation of monetary easing – dubbed “QE3” – the central bank has purchased around $1.6 trillion in government bonds and mortgage-backed securities. With QE3 now expected wind down, November could be the first time in more than 37 months that the Fed will not be dipping its toe in the securities market.

Here’s how QE has changed the global economy. In September 2012, the Fed announced it would be buying $40bn in mortgage-backed debt in addition to goverment bonds each month. At the time, the US economy was still in the midst of a fledgling recovery, while the eurozone crisis had begun to ease after Mario Draghi did his best to soothe markets. Then Fed chief Ben Bernanke announced the programme would be open-ended and contingent on improving conditions in the US labour market. In December last year, the central bank said that it would start to “taper” its purchases and buy fewer assets in each successive month. It has now decided the US economy is strong enough to and the stimulus altogether. Here’s why: Stubbornly high unemployment was one of the key reasons the Fed decided to embark on additional stimulative measures in 2012. Arguably, one the best indicators of the success of QE3 has been the fall in unemployment from more than 8pc, when the purchases began, to less than 6pc last month.

“…if China’s economy slows, domestic consumption will start feeling the pain, leading to even less job creation and slower growth. That’s a feedback loop that will not end well for China.”

• The Biggest Risk For US Investors Is A China Crash (MarketWatch)

There’s a lot of talk about how the U.S. stock market and the American economy will fare now that the Federal Reserve plans to end its bond-buying program. But the bigger risks are from overseas, namely a European slowdown and the threat of terrorism from ISIS in the Middle East. And the biggest risk for the next year is from China. Here’s why: China growth is falling fast: Last week, we learned that China’s gross domestic product growth rate for the third quarter was 7.3%, the slowest in five years. That’s down sharply from a peak of 11.9% in 2010 and below the 7.5% pace Beijing has been targeting. In fact, China has posted growth of 7.6% or higher dating back to 2000.

Domestic demand under pressure: Remember that China’s own policy makers estimate that 7.2% growth is running at about break-even. That’s because a growth rate that large is needed simply to create enough jobs — about 10 million annually — to support China’s massive (and still growing) population. Think of it this way: After the Great Recession, the U.S. returned to GDP expansion and even posted a respectable 2.5% growth rate in 2010 but, unfortunately, that didn’t necessarily mean much for American consumers or job-seekers that year. Or put another way, economists estimate about 2.2 million jobs must be created every year in the U.S. simply to ensure there’s work for a growing population of job-seekers. And China needs over four times that kind of growth. So if China’s economy slows, domestic consumption will start feeling the pain, leading to even less job creation and slower growth. That’s a feedback loop that will not end well for China, or investors in China stocks.

Government created loopholes all over the place.

• Is China’s Export Boom Fake? (CNBC)

Exports are regarded as the bright spot in China’s slowing economy, but growing evidence suggests mainland firms are “over-invoicing” outbound shipments, inflating the trade data, say economists. “When China’s external trade data for September came out two weeks ago, we were surprised by the apparent strength of exports. The Hong Kong trade data released [on Monday] suggests that renewed over-invoicing may be part of the reason for China’s strong September export data,” said Louis Kuijs, chief China economist at RBS. China’s exports rose 15.3% on year in September, beating a median forecast in a Reuters poll for a rise of 11.8%, following a 9.4% rise in August. In the same month, China reported that it exported $37.6 billion worth of goods to Hong Kong, while Hong Kong data revealed imports of just $24.1 billion, yielding an unusually large $13.5 billion gap.

“While there have always been discrepancies between the two sources on this trade flow, the discrepancy in September was equivalent to 4.3 percentage points of total export growth, the largest positive discrepancy since April 2013 during the previous round of over-invoicing,” said Kuijs. Widely seen in early 2013, over-invoicing is a technique by which companies inflate the value of exports, allowing them to evade capital controls and bring more funds into the country. Why is this happening? Last year, expectations of yuan appreciation seemed to be the key driving force. This year, the motivations appear to have shifted, said Kuijs. “One possible motivation could be that money was channeled to the Shanghai A-share market on expectations the A share market would rise after the launch of the Shanghai – Hong Kong Connect scheme,” he said. “Such flows may help to explain the rise in the A-share market index in September in the absence of obvious good economic or financial news,” he added.

“…companies have “faked, forged, and illegally re-used” documents for exports and imports”

• Another Reason Not to Trust China’s Economic Data (BW)

The numbers don’t match. In September, China exported $37.6 billion to Hong Kong, according to government data compiled by Bloomberg. For the same month, Hong Kong’s government says imports from the mainland amounted to only $24.1 billion. That’s this year’s biggest gap between Chinese and Hong Kong figures. Where did all those billions of dollars go? Julian Evans-Pritchard, Capital Economics’ China economist, called the results “very suspicious,” especially since the discrepancies are largely related to the trade of precious metals and stones. “It seems the Chinese customs are basically overvaluing these gems [and] these precious metals,” he told Bloomberg Television on Tuesday. Meanwhile, “Hong Kong customs are valuing them more accurately.” The China-Hong Kong discrepancy is just one example. Evans-Pritchard points to similar discrepancies regarding Chinese imports from South Korea. “

What appears to be happening [is] we have some round-tripping,” he said. Companies may be claiming to import the stones from Korea at a certain price and then export them to Hong Kong at a higher price, pocketing the difference. That helps companies evade Chinese government currency controls at a time when there’s renewed pressure to strengthen the yuan. With such conditions, “it makes a lot of sense” for Chinese companies to borrow money cheaply abroad and find ways to get that money into the country. The Chinese government is not blind to the problem. China has found almost $10 billion in fraudulent trades nationwide since April of last year, and companies have “faked, forged, and illegally re-used” documents for exports and imports, Wu Ruilin, a deputy head of the State Administration of Foreign Exchange’s inspection department, told reporters in Beijing in September.

Dangerous development.

• China Shadow Banking Shifted to Insurers Alarms Moody’s (Bloomberg)

A doubling in the trust holdings of China’s insurers has prompted ratings companies to warn the industry may be taking on too much shadow banking default-risk. Insurers held 281 billion yuan ($46 billion) of trust products on June 30, surging from 144 billion yuan at the end of last year, China Insurance Regulatory Commission data show. The companies’ shadow bank assets, including wealth management products and other financing kept off commercial lenders’ balance sheets, reached 1.14 trillion yuan, or 13% of their investments, Standard & Poor’s estimated, adding that this made them “vulnerable in times of stress.” China Pacific Life Insurance, Taiping Life Insurance and Du-Bang Property & Casualty Insurance all expanded trust investment fivefold or more in the first half, a “credit negative” for companies traditionally focused on fixed-income securities, according to Moody’s Investors Service. 51% of the trust investment was directed to real estate and infrastructure, making insurers vulnerable to a cooling property market, according to Fitch Ratings.

“If the insurers experience any liquidity problems, they won’t be able to easily turn these trust investments into cash,” said Sally Yim, a Moody’s analyst in Hong Kong. “These assets also tend to be more volatile. The yield may be higher, but there may also be defaults.” Chinese insurers’ assets doubled in the past five years to 9.6 trillion yuan last month, as premium income climbed an average of 14% annually. Squeezed by competition from wealth management products sold by banks and online funds, insurers started offering policies with investment characteristics to compete for money. “Over the last two or three years, banking product rates have been quite competitive compared with some of the rates offered by the insurers,” said Terrence Wong, a director at Fitch in Hong Kong. “So to enhance the yield, they have to seek investment instruments with higher returns.”

More recovery.

• US Homeownership Rate Drops To 1983 Levels (Zero Hedge)

The last time US homeownership declined down to 64.4% (which the Census Bureau just reported is what US homeownership declined to from 64.7% in Q2), was back in the fourth quarter of 1983. It goes without saying that this is about the bearishest news possible for those few who still believe in the American homewonership dream. Of course, those who have been following real-time rental market trends would be all too aware there is no rebound coming to the homeownership rate. The reason is simple: increasingly fewer can afford to buy, instead having no choice but to rent, which in turn has pushed the median asking rent to record highs.

In fact in the past two quarters, the asking rent was just $10 shy of its time highs at $756 per month. But capital allocation preferences aside, while explaining the disparity between rental and homeownership in a world where Renting is the new American Dream, what [this doesn’t explain] is why there is no incremental demand from all those millions of young Americans who enter the population and, eventually, the workforce. At least on paper. Earlier today, Bank of America was confused by precisely this:

Population growth of 25-34 year olds outpacing growth in the housing stock: The primary driver of household formation is population growth among 25 to 34 year olds. There is notable divergence with the growth in this age group and the growth in the housing stock. This suggests greater doubling up of households as a result of the recession and weak recovery. Unless doubling up turns into tripling up, household formation should recover over time, creating a need for greater building. Given tight credit conditions, this will tend to drive apartment construction more than single family construction. Either way, the housing stock is lagging well behind demographic fundamentals.

Only, they will.

• Why British Interest Rates Will Never Go Up Again (MarketWatch)

The autumn of 2014? Er, scratch that. The spring of 2015? Put that on the back burner. How about the autumn of 2015? For the moment, that seems to be the consensus. The markets have had plenty of dates that they penciled in for the first rate rise from the Bank of England. But each time one of them actually comes close, something comes along to blow it off course. It happened again this month. Analysts and economists in the City of London were confidently expecting the first rise sometime in the spring of next year. Then the plunge in the global markets of early October, combined with some disappointing economic data, meant that timetable was hurriedly reset. Here’s what is actually going to happen. Interest rates in the U.K. may not ever go up from the near-zero level of the last few years.

Japan cut its rates to those levels more than two decades ago and it is no closer to a rate rise now than it was in the mid-1990s. Sooner or later the penny is going to drop that rates are not going to go up, at least not in the working lives of most people in the market today. The timetable for the Bank of England to start moving interest rates back to normal levels is about as reliable as an Italian train. When Gov. Mark Carney moved from Canada to the U.K., he bought with him a policy of forward guidance, which was meant to give companies and consumers a clearer idea of where interest rates were heading. He set out criteria such as falling unemployment, and rising real wages, that would need to be met. But once those targets were hit, rates would start going up again.

There was certainly a lot to be said for that. It was on March 5, 2009, that the bank cut interest rates all the way down to 0.5%. At the time, it was presented as an emergency measure, designed to cope with deep recession bought on by the near collapse of the financial system a few months earlier. It was not presented as a normal rate, nor, at the time, is it likely that many of the members of the Monetary Policy Committee saw it that way either. They thought rates would stay at that level for a year or two, and then start to edge their way back towards normal. The trouble is, the right moment never seems to arrive. Despite heavy signaling through last spring that a rate rise was likely before the end of 2014, it hasn’t happened.

It’s now become a joke.

• EU Financial Transaction Tax Bid Falters on Revenue Disagreement (Bloomberg)

The European Union must figure out how to handle revenues from a proposed financial-transaction tax to meet a year-end deadline for moving ahead with the levy in participating nations. Ten nations pledged in May to seek agreement on a “progressive” tax on equities and “some derivatives” by the end of 2014, with implementation planned for a year later. As that deadline approaches, nations have found broad agreement on how to handle equities, according to an Oct. 27 planning document obtained by Bloomberg News. Derivatives and revenues are the biggest obstacles to moving forward with a proposed tax by year end, according to Italy, one of the participating nations and also current holder of the EU’s rotating presidency. National officials are due to discuss the tax plan this week, ahead of a Nov. 7 finance ministers’ meeting in Brussels. Italy proposed three possible models for shifting revenue from countries where transactions take place to nations where the trading firms are based, so that countries with smaller financial sectors wouldn’t be at a disadvantage.

This would allow the tax to be collected in the country of issuance, then allocated to take account of other parameters like residence. “Delegations could not agree on the solution of revenue distribution that would be acceptable to all of them,” according to the planning document. Willing nations are considering how to build the first phase of a trading tax, with an eye toward expanding it in future years. EU policy makers have considered a transactions tax to raise money and discourage speculative trading, goals that have gained urgency since the financial crisis and the euro-area budget rules adopted in its wake. Efforts to build a common tax for all 28 member nations fell apart, followed by a scaled back proposal for a joint tax among 11 willing nations. The plans have been criticized by banks and trading firms, which have warned that could curtail investment at a time when the EU is seeking to boost anemic economic growth.

“The FTT is about the worst idea of the last three centuries,” Wim Mijs, chief executive of the European Banking Federation, a Brussels-based industry group, told reporters yesterday. In some countries, the “cost of implementing it is higher than the possible gain,” he said. [..] Most participating nations are in favor of including equity derivatives, so that trading in equities doesn’t immediately jump to a non-taxed transaction. Still, some nations want to exclude equity derivatives, the document showed. Some nations want to tax credit default swaps. Other nations have concerns about interest-rate derivatives because these trades have ties to monetary policy and government bonds.

Many nations do.

• UK Faces ‘Debt Timebomb’ From Ageing Population (Telegraph)

Britain’s ageing population has created a “debt timebomb” that can only be defused through a combination of significant spending cuts, faster increases in the state pension age and ending universal free healthcare, according to a respected think-tank. The Institute of Economic Affairs (IEA) warned that the Government would need to slash public spending by a quarter in order to get Britain’s debt mountain down to sustainable levels. In a set of radical proposals, the IEA called on the Government to end “unhelpful” policies such as the “triple lock guarantee” that ensures the state pension increases by the higher of inflation, average earnings or a minimum of 2.5pc every year. It also said charging for some NHS services would help to reduce demand.

The IEA calculated that Government spending cuts equivalent to 9.6pc of GDP – or £168bn per year in today’s money – were needed to reduce Britain’s debt-to-GDP ratio to 20pc by 2063. This is equivalent to cutting the health, welfare and pensions budgets in half, or overall spending by a quarter. “Politicians must wake up to the size of the debt time bomb in the UK. Older generations have voted themselves benefits that will indebt future generations, meaning crippling tax hikes for our children and grandchildren,” said Philip Booth, editorial director at the IEA. “Very significant spending restraint and reform of entitlements will be required in the next parliament and beyond to get our debt levels back under control.” While the think-tank welcomed the measures introduced by the Government to link the state pension age to life expectancy and commit to a further £67bn worth of austerity by 2018-19, it said that without further reforms, debt would continue to rise in the long-term.

How is this possible? Why do we condone preying on the poor?

• Payday Loan Brokers Regularly Raid Bank Accounts Of Poor Customers (Guardian)

A new breed of payday loan brokers are making as many as 1m attempts per month to raid the bank accounts of some of the poorest members of society. The behaviour is provoking alarm at one of Britain’s biggest high street banks, Natwest, which says it is being inundated with complaints from its most vulnerable customers. NatWest said it is seeing as many as 640 complaints a day from customers who say that sums, usually in the range of £50 to £75, have been taken from their accounts by companies they do not recognise but are in fact payday loan brokers. The brokers are websites that promise to find loans, but are not lenders themselves. Often buried in the small print is a clause allowing the payday broker to charge £50 to £75 to find the person a loan – on top of an annual interest charge as high as 3,000%. In the worst cases, the site shares the person’s bank details with as many as 200 other companies, which then also attempt to levy charges against the individual.

The City regulator has received a dossier of information about the escalating problem, and the Financial Ombudsman Service also confirmed that it is facing a wave of complaints about the issue. NatWest, which is owned by the Royal Bank of Scotland, gave as an example a 41-year-old shop assistant who took a payday loan of £100 at 2,216% interest. A month later she complained to NatWest after seeing a separate fee of £67.88 paid to My Loan Now and £67.95 to Loans Direct on her account, companies she said she had never dealt with. The broker sites tell customers they need their bank account details to search for a loan, but then pass them on to as many as 200 other brokers and lenders, which then seek to extract fees, even if they have not supplied a loan. The small print allowing the site to pass on the details and demand payments can be hidden in the site’s ‘privacy policy’ or in small print at the bottom of the page.

Sure.

• Dubai Insists the Boom is Not a Bubble This Time Around (Bloomberg)

Alongside the Dubai Mall, one of the world’s largest shopping centers, sits an ersatz version of what would be an authentic retail experience in most Persian Gulf cities: an Arab souk. If, in the evening, you stroll through this air-conditioned, hassle- and haggle-free caricature of a market, staffed mostly by smiling South Asians, you can amble out onto the shores of man-made Burj Khalifa Lake, named after the world’s tallest building, which looms over it. Here – bumping elbows with a veritable United Nations General Assembly of residents and tourists decked out in everything from dishdashas to Dior – you can gawk at the Dubai Fountain, Bloomberg Markets magazine will report in its December issue. Every half-hour, an array of computer-choreographed nozzles sends jets of water erupting from the lake’s surface 500 feet into the air, gyrating to Middle Eastern pop one minute and Andrea Bocelli singing “Con Te Partiro” the next.

Awash in fantasia, this metropolis of glass and steel sprouting from the barren sands of the Arabian Peninsula often seems nothing more than an illusion born of desert heat. Never was Dubai more miragelike than five years ago, after the global financial crisis crushed what had been a bastion of wealth and growth. House prices plunged as much as 60%. Half of the city’s $582 billion in construction projects were either placed on hold or abandoned, their incomplete steel skeletons left poking from the sand, a 21st-century Ozymandias. Now, Dubai is booming again. To understand why, journey 20 miles (32 kilometers) from the Dubai Mall to a part of the city few tourists ever see. Here, if you pass through the security gates at Jebel Ali port, you’re treated to another mesmerizing mechanical ballet – one less ephemeral and arguably more important to the city-state’s fate than the Dubai Fountain’s dancing waters. Towering gantry cranes sidle up to 1,200-foot-long (365-meter-long) container ships bound for Mumbai or Singapore or Rotterdam.

“The big question is what China will do with all of these cargoes…”

• Chinese Oil Trader Buys Record Number of Mideast Cargoes (Bloomberg)

China National United Oil Co., a unit of the country’s biggest energy company, bought the most ever cargoes of Middle East crude through a pricing platform in Singapore amid oil’s slump into a bear market. The company, known as Chinaoil, purchased about 21 million barrels this month through the system used to determine benchmark prices by Platts, a unit of McGraw Hill Financial Inc. It bought more than 40 cargoes of the Dubai, Oman and Upper Zakum grades in the so-called window, according to data compiled by Bloomberg. A Beijing-based press officer for CNPC, the parent company, wasn’t immediately able to comment and asked not to be identified because of internal policy. “It’s very difficult for the market to know Chinaoil’s strategy,” Ehsan Ul-Haq, a senior market consultant at KBC Energy Economics in Walton-on-Thames, England, said by phone.

“Prices have gone down and China is always interested in buying more crude whenever the price is right, but they could also have some other different trading strategy.” Benchmark oil prices tumbled to the lowest in almost four years this month amid signs of an expanding global supply glut, led by the highest U.S. production in about three decades. China consumed the second-largest amount of crude ever last month and its stockpiles increased to a record. Some of Chinaoil’s cargoes may be used to fill the country’s strategic crude reserves, according to JBC Energy GmbH, a Vienna-based consultant. “The big question is what China will do with all of these cargoes,” JBC said in an e-mailed report Oct. 21. “If the Middle Kingdom puts the barrels into strategic storage, something that would be logical given low outright prices, they will disappear entirely from the market and China will still have to buy more crude for its day-to-day needs.”

How corrupt is the government that’s supposed to fight corruption?

• Rajoy Apologizes as New Wave of Corruption Allegations Hits Spain (Bloomberg)

Prime Minister Mariano Rajoy apologized to the Spanish people yesterday amid mounting public outrage at a new wave of corruption allegations against officials from his party. All members of the governing People’s Party among the 51 arrested this week on bribery allegations have had their party membership suspended and will be expelled if the charges are proved, Rajoy told the Senate in Madrid. “I understand and share fully the indignation of so many Spaniards at the accumulation of scandals,” Rajoy said. “In the name of the People’s Party I want to apologize to all Spaniards for having appointed to positions for which they were not worthy those who would seem to have abused them.”

Rajoy is battling to retain his moral authority amid evidence that local officials took bribes to hand out public contracts while he was administering the harshest budget cuts in Spain’s democratic history. This week’s arrests follow allegations from the former PP treasurer, Luis Barcenas, that Rajoy and other senior party officials including Rodrigo Rato, a former deputy prime minister, accepted cash from a party slush fund. Rajoy has denied the allegations against him. Barcenas produced handwritten ledgers to back up his claims that he handed out envelopes of cash to party officials and received text messages of support from Rajoy during the early part of the investigation. He’s in jail while the National Court probes his financial affairs.

A survey by the state pollster in July showed political corruption is the second-biggest concern for Spaniards after the country’s 24% unemployment rate, the second highest in the European Union. “Explain about the envelopes, explain about the messages you sent to Barcenas, explain about the secret financing of your party,” the opposition Socialist leader in the Senate, Maria Chivite, told Rajoy in response. “Explain to all Spaniards how many senior official from your party will appear before the courts because of their accounts in Switzerland.”

It’s not like we we born as consumers.

• How The Consumer Dream Went Wrong (BBC)

We could, it seemed, have it all. So what went wrong? The truth is this: despite all its promise, the idea of the Consumer is killing us. And before it does, we must kill it. I can perhaps best explain why the golden dream went so wrong by describing one of a series of recent experiments that have explored the effect of this word on our behaviour. The simplest was a survey of environmental and social attitudes and values. The group taking the survey was split in half. For half, the front cover said Consumer Reaction Study, for the rest, Citizen Reaction Study. No specific attention was drawn to this and there was no other significant difference between the two groups; just this one word. Yet those who answered the Consumer Reaction Study were far less motivated to care about society or the environment.

That pattern has been seen elsewhere, and the only possible explanation for the difference is the unconscious effect of merely being exposed to the language of the Consumer as a prime, a kind of mental framing of the task at hand. How can this be? Can a word, just a word, really make us less likely to care about one another and about the world, and less likely to trust and work with one another to fix it? Here’s the thing – nothing is “just a word”. Language is the scaffolding on which we build our thoughts, attitudes, values and behaviours. And as we do so, we would do well to recognise that the Consumer is a deeply dangerous place to start. Because what looks at surface level like a word is in fact a moral idea, an idea of what the right thing is for us to do in our daily lives. This word Consumer represents the idea that all we can do is consume, choosing between the options offered us, and that the morally right thing for us to do is to pick the best of these for ourselves, measured in material standards of living, as narrowly defined individuals, and in the short term.

But we can be happy only as consumers these days.

• Gross National Happiness – Can We Measure A Feelgood Factor? (Guardian)

The UK economy continues to recover, albeit at a slower pace, the latest official figures show. But how well does this reflect how people are feeling? GDP measurements only provide part of the picture and so the Office for National Statistics will soon reveal details of a new set of supplementary indicators on economic well-being. It follows a pledge by the prime minister, David Cameron, in 2010 to make the UK one of the first countries to officially monitor happiness. The inaugural release including how households are doing, how well-off people feel and other insights into well-being will be published just in time for Christmas on 23 December.

Bhutan is the real trailblazer in this area. The tiny nation to the east of the Himalayas has long been renowned for its focus not on GDP – gross domestic product – but GNH (gross national happiness). In other words, what matters to Bhutan more than upping production and improving productivity is whether its citizens are happy. It’s a measure the remote south Asian nation has been using since the early 1970s, well before the rest of the world began to realise that wealthier does not necessarily translate into happier. The ONS says its new regular well-being release will help businesses, households and policymakers in the UK make better-informed decisions by providing a whole “dashboard” of indicators on the state of the economy.

They’re not trying.

• Australia Protection Plan ‘Will Not Save Great Barrier Reef’ (BBC)

Australia’s Academy of Science says an Australian government draft plan to protect the Great Barrier Reef will not prevent its decline. The group said the Reef 2050 Long-Term Sustainability Plan failed to address key pressures on the reef including climate change and coastal development. Much bolder action was needed, said Academy Fellow Professor Terry Hughes. “The science is clear, the reef is degraded and its condition is worsening,” said Prof Hughes. “This is a plan that won’t restore the reef, it won’t even maintain it in its already diminished state,” he said in a statement released on Tuesday. “It is also more than disappointing to see that the biggest threat to the reef – climate change – is virtually ignored in this plan.”

Public submissions on the draft plan – an overarching framework for protecting and managing the reef from 2015 to 2050 – closed on Monday. The plan will eventually be submitted to the World Heritage Centre in late January, for consideration by Unesco’s World Heritage Committee mid-next year. Unesco has threatened to place the reef on its List of World Heritage in Danger. According to scientists, another major threat to the reef’s health is continual expansion of coal ports along the Queensland coast. In a controversial move earlier this year, the Australian government approved a plan to dredge a port at Abbot Point in Queensland, and dump thousands of tonnes of sediment in the sea.

New Zealand needs to diversify away from export-driven monoculture, and towards its own domestic market.

• Blame The Cows: Kiwi Dollar May Stumble (CNBC)

Once billed as the hottest currency trade this year, New Zealand’s dollar is set to stumble, tripped up by spilled milk. “Since peaking in February this year, international dairy prices per Fonterra Global Dairy Trade (GDT) auction have fallen by almost 50%,” Morgan Stanley said in a note Tuesday, noting that dairy products are New Zealand’s largest export, accounting for 26.4% of the total. “Due to New Zealand’s specialization in whole milk powder (WMP) exports to China, we expect the fall in price and import demand to weigh on the New Zealand dollar,” the note said. It’s a turnaround from the beginning of the year, when analysts had expected strong gains in the kiwi. BK Asset Management in January called the New Zealand dollar, also known as the kiwi, one of its favorite trades for the year, citing expectations the central bank would hike interest rates and increased demand for “soft commodities.”

After starting the year around $0.8221, the kiwi climbed to highs of over $0.88 in July, but it has since stumbled, fetching around $0.79 in early Asia trade Wednesday. Dairy prices face a lot of headwinds, likely keeping milk prices depressed for a while. “We expect the recent peak in dairy prices, the lift of EU dairy quota and lower feed costs to increase global milk production,” Morgan Stanley said, noting the USDA forecasts global dairy export volume to rise 10% in 2014. The EU dairy quota system, which fined countries for surplus production over a delivery quota, is set to be scrapped after the first quarter of next year, and Morgan Stanley noted that farmers there have already begun increasing their cow counts. While New Zealand will likely continue to dominate WMP exports to China, media reports indicate the mainland’s inventories are stocked up and lower prices aren’t likely to spur additional demand, the note said.

By plane as well…

• Russia to Send 3,000 Tons of Aid to Eastern Ukraine Within Week (RIA)

Russia will send up to 3,000 metric tons of humanitarian aid to Ukraine’s southeastern regions within a week, Russian Deputy Emergencies Minister Vladimir Stepanov told RIA Novosti Tuesday. “Within a week the total weight of humanitarian aid will amount to 3,000 metric tons,” Stepanov said, adding that it will be delivered both by aircraft and land vehicles. According to Stepanov, on Tuesday three aircraft will deliver part of the aid to the Russian city of Rostov-on-Don, where it will be loaded onto trucks. The aid includes food, medicine and construction materials that will help residents of southeastern Ukraine to prepare for the winter.

The deliveries of aid to Ukraine are being carried out in coordination with the Red Cross and the Russian Foreign Ministry. Earlier today, Russia’s Emergency Ministry confirmed that on October 28 a convoy of up to 50 trucks carrying humanitarian aid for the people of Donetsk and Luhansk regions will depart from the city of Noginsk. Since August, Russia has sent three humanitarian convoys of trucks carrying food, water, power generators, medication and warm clothes to eastern Ukrainian regions, which went through a severe humanitarian crisis due to the military operation initiated by Kiev’s authorities in April.

Is he talking about TV series?

• Pope Francis: Evolution and Big Bang Theory Are Real (NBC)

Big Bang theory and evolution in nature “do not contradict” the idea of creation, Pope Francis has told an audience at the Vatican, saying God was not “a magician with a magic wand.” The Pope’s remarks on Monday to the Pontifical Academy of Sciences appeared to be a theological break from his predecessor Benedict XVI, a strong exponent of creationism. “The beginning of the world is not the work of chaos that owes its origin to something else, but it derives directly from a supreme principle that creates out of love,” Pope Francis said.

“The Big Bang, that today is considered to be the origin of the world, does not contradict the creative intervention of God; on the contrary, it requires it. Evolution in nature is not in contrast with the notion of [divine] creation because evolution requires the creation of the beings that evolve.” The Pontiff said God created beings “and let them develop in accordance with the internal laws that he has given to each one.” He said: “When we read in Genesis the account of creation [we are] in danger of imagining that God was a magician, complete with a magic wand that can do all things. But he is not.”

Not a problem for us to solve.

• Population Controls ‘Will Not Solve Environment Issues’ (BBC)

Restricting population growth will not solve global issues of sustainability in the short term, new research says. A worldwide one-child policy would mean the number of people in 2100 remained around current levels, according to a study published in the Proceedings of the National Academy of Sciences. Even a catastrophic event that killed billions of people would have little effect on the overall impact, it said. There may be 12 billion humans on Earth by 2100, latest projections suggest. Concerns about the impact of people on the planet’s resources have been growing, especially if the population continues to increase. The authors of this new study said roughly 14% of all the people who ever existed were alive today.

These growing numbers mean a greater impact on the environment than ever, with worries about the conversion of forests for agriculture, the rise of urbanisation, the pressure on species, pollution, and climate change. The picture is complicated by the fact that while the overall figures have been growing, the world’s per-capita fertility has been declining for several decades. The impact on the environment has increased substantially, however, because of rising affluence and consumption rates. Many experts have argued the best way of tackling this impact is to facilitate a rapid transition to much lower fertility rates.