Piketty Archives - The Automatic Earth

French economist Thomas Piketty is one of the world’s leading researchers of global income and wealth inequality, and became well-known in the United States when the English translation of his book “Capital in the 21st Century” became a surprise bestseller. For the past year, Piketty has been speaking about the 2018 World Inequality Report, published by the Paris School of Economics’ World Inequality Lab last December. Piketty coauthored the report alongside Facundo Alvaredo, Lucas Chancel, Emmanuel Saez, and Gabriel Zucman. In his talks in the US, Piketty has paid special attention to the following chart, which shows what he and his coauthors called “perhaps the most striking development in the United States economy over the last four decades.”

The authors write that “the incomes of the top 1% collectively made up 11% of national income in 1980, but now constitute above 20% of national income, while the 20% of US national income that was attributable to the bottom 50% in 1980 has fallen to just 12% today.” Further, “while average pre-tax income for the bottom 50% has stagnated at around $16,000 since 1980, the top 1% has experienced 300% growth in their incomes to approximately $1,340,000 in 2014. This has increased the average earnings differential between the top 1% and the bottom 50% from 27 times in 1980 to 81 times today.”

The Guardian/Observer, leading anti-Trump voice, has a piece ‘Unfit for President, but…” Look, just like the NYT, you no longer are a voice, because you’ve spent two years 24/7 denouncing the man with rumors and half-truths -like you did with Corbyn being anti-semite. You can’t now turn around and be a voice for democracy. You’re done.

• This Insider Betrayal Is A Sorry Precedent (Observer ed.)

[..] the president’s discomfort, and his detractors’ glee, should not obscure more serious issues raised by this affair and by similarly critical revelations contained in a new exposé by the celebrated Watergate reporter Bob Woodward. Whatever one’s opinion of Trump, it is a matter of concern that unelected, unnamed officials are apparently willing and able to act in ways contrary to an elected president’s stated wishes and calculated to thwart his policies. Trump’s worst instincts must undoubtedly be resisted, as Barack Obama, rejoining the fight last week, has declared. The best way to achieve that, as ever in a democracy, is through public scrutiny and open debate. Every leader needs candid advisers.

But who are these self-described “adults in the room” to clandestinely decide what is in the best interests of the country? Their motives may be sound, but their illicit actions, boasted of publicly, set a worrisome precedent. They have also gifted Trump a golden opportunity to peddle his favourite narrative of an establishment conspiring against him, aided and abetted by media organisations – which he terms “enemies of the people”. Speaking in Montana on Thursday, he seized his chance. “Unelected, deep state operatives who defy the voters to push their own secret agendas are truly a threat to democracy itself,” he declared.

The anonymous writer tried to provide reassurance that things in the White House are not as bad as they seem. Woodward’s new book, Fear, suggests the exact opposite: they are worse. It describes a “Crazytown” of tantrums, endless crises, serial lying, unhinged behaviour, and an administration in a recurring state of nervous breakdown.

It’s not so much dominoes falling one by one, it’s the USD that crashes down everything.

• Argentina, Turkey, Mexico … Fear Of Contagion Haunts Emerging Markets (G.)

In the past six months, some of the world’s fastest-growing economies have found themselves flat on the floor, gasping for breath and, in one case, seeking help from the global financial rescue centre otherwise known as the IMF. Argentina’s $50bn bailout by the Washington-based lender of last resort is the most extreme event so far, but it sits alongside the dramatic collapse of the Turkish lira, a recession in South Africa and dire economic predictions for the Philippines, Indonesia and Mexico. Making matters worse, the US is poised to slap tariffs as high as 25% on as much as $200bn worth of Chinese goods. If the US goes ahead, Beijing has already threatened to retaliate, which would only incense President Donald Trump further.

This tit-for-tat might only end when tariffs are applied to the entire $500bn of Chinese goods imported by America each year. In response, the stock markets of many developing nations have slumped in value, leaving investors to ask themselves whether they are witnessing an emerging-markets meltdown akin to the Asian crisis of 1997: a panic that wrecked the finances of several hedge funds and proved to be an hors d’oeuvre before the dotcom crash of 1999 and the global financial crisis of 2008. Investors have run for safety to such an extent that the MSCI Emerging Markets index, which measures the value of shares in emerging economies, has tumbled by more than 20% since the beginning of the year.

That slump appeared to be over in July, when Turkey and Argentina were seen as being isolated, and more importantly ringfenced, economic trouble spots. But figures last week showing that the US economy is steaming along like a runaway train – underlining the likelihood of more US interest rate rises – have sent the currencies and stock markets of most emerging-market economies tumbling again. Lukman Otunuga, research analyst at currency dealer FXTM, says that a sense of doom is lingering in the financial markets as fears of contagion from the “brutal emerging-market sell-off” rattle investor confidence. “More pain seems to be ahead for emerging markets as the combination of global trade tensions, prospects of higher US interest rates and overall market uncertainty haunt investor attraction,” he says.

Now we’re talking.

• No-Deal Brexit Could Lead To “Military On The Streets” (Ind.)

A no-deal Brexit could lead to the “real possibility” of police calling upon the military to help with civil disorder, a leaked document claims. Contingency plans are being drawn up by police chiefs if there is chaos on the streets due to shortages of goods, food and medicine, The document prepared by the National Police Co-ordination Centre (NPoCC) warns of traffic queues at ports with “unprecedented and overwhelming” disruption to the road network. Concerns around medical supplies could “feed civil disorder”, while a rise in the price of goods could also lead to “widespread protest”, the document obtained by the Sunday Times said.

The potential for a restricted supply of goods raised concerns of “widespread protest which could then escalate into disorder”. It could also trigger a rise in non-Brexit-related acquisitive crime such as theft. The document, set to be considered by the National Police Chiefs’ Council (NPCC) later this month, also sets out concerns of increased data costs, loss of warrant cards and queues at ports and docks around the country. Shadow police minister Louise Haigh lashed out at the Government’s handling of the situation. “This is the nightmare scenario long feared; according to the UK’s most senior police officers a no-deal Brexit could leave Britain on the brink,” she said.

May keeps pushing the same button after it’s failed 1000 times. The EU won’t give.

• Brexit Talks At Risk Of Collapse (Ind.)

Brexit talks are at risk of collapse as a planned EU compromise on the critical question of the Irish border has been branded “unacceptable” by British cabinet ministers. The Independent has learnt that EU officials believe they have struck upon “the only way” to bring the two sides together on the Irish border in a bid to secure a withdrawal agreement later this year. But their proposal has already been outright rejected by at least two cabinet ministers, with one going further and branding the EU’s suggestion “bollocks”. The impasse over the Irish border threatens to bring the talks crashing down with Theresa May’s beleaguered Chequers proposal already lacking support both in Europe and among her own MPs in Westminster.

The Independent now understands that the EU will try to break the deadlock in negotiations by offering the UK a vague political declaration on the future UK-EU relationship in return for a deal on the Irish border. A well-placed Brussels source said: “This may well prove the only way to respect the EU’s red lines and allow Theresa May to win approval for a deal in the UK parliament. “The political declaration holds the key to reaching a deal.” Since the start of Brexit talks Brussels has insisted the UK sign up to a legally binding “backstop”, which would come into play if no arrangement to avoid a hard border in Northern Ireland is found before Brexit day. It would see Northern Ireland effectively remain in the EU’s customs union and single market, creating a customs border down the Irish sea – something both Ms May and her DUP partners say is unacceptable.

[..] The strength of opposition indicates Ms May could face a further round of cabinet resignations if she were to consider agreeing to such a proposal, with Boris Johnson and David Davis having already quit earlier this year. A government spokesman said: “We don’t comment on speculation. The proposals we have put forward for our future relationship would allow both sides to meet our commitments to the people of Northern Ireland in full and we are working hard to get a deal on that basis. “But we are clear the EU backstop proposals are unacceptable.”

The Tories are thinking: we got rid of unions, didn’t we?

• Bombshell Poll Reveals Heavy Union Backing For Second Brexit Vote (G.)

Members of Britain’s three biggest trade unions now support a new referendum on Brexit by a margin of more than two to one, according to a bombshell poll that will cause political shockwaves on the eve of the party conference season. The survey of more than 2,700 members of Unite, Unison and the GMB by YouGov, for the People’s Vote campaign, also finds that a clear majority of members of the three unions now back staying in the EU, believing Brexit will be bad for jobs and living standards. The poll comes as union delegates gather in Manchester for the annual TUC conference, where Brexit will be debated on Monday, and two weeks before the Labour party conference in Liverpool, where delegates are expected to debate and vote on Brexit policy. They will also consider calls to keep open the option of a fresh referendum on any deal Theresa May may strike on the UK’s exit from the EU.

In an interview with the Observer before the poll findings were released, shadow chancellor John McDonnell said his preferred option was still for voters to be offered a say on the government’s handling of Brexit – and any deal brought back from Brussels by May – in a general election. But he said that if Labour was unable to force one in the coming months, he wanted to “keep all options open”, including supporting a new referendum. McDonnell said he was sure there would be a full debate, and votes, on Brexit at the Labour conference. And he went out of his way to praise the People’s Vote campaign, which he said had been very “constructive” and had made clear that its attempts to influence Labour policy should not be seen “as an attack on Jeremy Corbyn or positioning around the leadership. It should be a constructive debate and that is right.”

The poll found that members of Unite, the country’s biggest union, and Labour’s largest financial backer, now support a referendum on the final Brexit deal by 59% to 33% and support staying in the EU by 61% to 35%. GMB’s members support putting the issue back to the people by 56% to 33% and its members want the UK to stay in the EU by 55% to 37%. Unison members back another referendum by 66% to 22% and would opt to stay in the EU by 61% to 35%.

That second vote will come, or else…

• YouGov Poll Shows Support For A People’s Brexit Vote Is Solid (G.)

Thirty years ago this week, Jacques Delors came to Bournemouth to urge Britain’s trade unions to change their stance on Europe. The president of the European commission told TUC delegates that the EU was good for workers’ jobs, workers’ rights and workers’ living standards. It was a decisive moment in the union movement’s relationship with Brussels. This week could be equally decisive for the TUC – perhaps even more so – given the precarious balance of forces at Westminster. And the clear message from YouGov’s poll of more than 2,700 members of the TUC’s three biggest unions is that most trade union members think Brexit is bad for jobs; they want a fresh public vote and the chance to keep the UK in the EU.

Can we be sure that YouGov’s figures are right? Do the people it polled accurately reflect the views of all the members of the three big unions? I recall the same questions being asked when YouGov first showed Jeremy Corbyn well ahead in the race for the Labour leadership three years ago. Nonsense, said the critics. YouGov’s respondents, they claimed, were hopelessly biased towards leftwing activists. When it came to it, Corbyn won by almost precisely the majority reported in the final poll. And the methods YouGov used in the latest union survey are essentially the same as it used in Labour’s leadership election three years ago.

It’s not that trade union members are indulging in gesture politics or ideological breast-beating. They are worried about the impact of Brexit on jobs, taxes, living standards and the NHS. They fear a Brexit Britain would find it harder to sell products and services abroad. Their attitudes to immigration are especially significant. In the 2016 referendum, one of the arguments for Brexit was that immigrant workers were undercutting the pay of low-paid British workers. Brexit, so the argument ran, would allow Britain to stop this. As a result, there would be more, and better-paid, jobs for British workers.

Many Unite, Unison and GMB members earn below-average wages. They might be expected to support that part of the Brexit agenda. They don’t. Overwhelming majorities, ranging from 74% to 85%, want EU citizens either to have complete freedom of movement to come to the UK, or the freedom to settle here if they have a job or university place lined up.

Tsipras is trying to create the impression that he decides and is bold. He has no say at all.

• Fresh From End Of Bailout, Greek PM Announces Tax Breaks (R.)

Greek Prime Minister Alexis Tsipras on Saturday unveiled plans for tax cuts and pledged spending to heal years of painful austerity, less than a month after Greece emerged from a bailout program financed by its EU partners and the IMF. Tsipras, who faces elections in about a year’s time, used a keynote policy speech in the northern city of Thessaloniki to announce a spending spree that he said would help fix the ills of years of belt-tightening, and help boost growth. But he said Athens was also committed to sticking to the fiscal targets and reforms promised to its lenders. Greece has agreed to maintain an annual primary budget surplus – which excludes debt servicing costs – of 3.5 percent of GDP up to 2022.

So far, it has outperformed on fiscal goals and the economy has returned to growth. “We will not allow Greece to revert to the era of deficits and fiscal derailment,” he told an audience of officials, diplomats and businessmen. He said would beat its primary surplus target again this year and, following a debt relief deal in June, he could “safely plan its post-bailout future”. Government officials have put this year’s fiscal room at 800 million euros. Tsipras promised a phased reduction of corporate tax to 25 percent from 29 percent from next year, as well as an average 30 percent reduction in a deeply unpopular annual property tax on homeowners, rising to 50 percent for low earners.

Amnesty’s Aussie branch. Timing?!

• Protect Assange From US Extradition, Amnesty International Tells UK (RT)

Amnesty International has backed calls to not extradite WikiLeaks founder Julian Assange to the United States, arguing that this would put his human rights at serious risk of abuse. The statement, issued Friday by the group’s Australian branch, backed Assange’s lawyers and supporters’ claim that if he is sent to the US, “he would face a real risk of serious human rights violations due to his work with WikiLeaks.” Amnesty said that Assange could face several human rights violations in the event that he is extradited to the US, including: violation of his right to freedom of expression; right to liberty; right to life if the death penalty were sought; and being held in conditions that would violate his right to humane treatment.

While Amnesty said it took “no position” on Ecuador’s decision to grant, and then withdraw, Assange’s diplomatic asylum, it did call on the UK government to recognize the “need for international protection vis-a-vis the USA” in relation to the whistleblower’s case. Amnesty has joined several other humanitarian organizations by backing Assange and denouncing any extradition attempt. These include the UN Human Rights office, Human Rights Watch, and the Inter-American Court of Human Rights.

How cheap money saved and doomed the world at the same time.

• The Latest Incarnation of Capitalism (Jacobin)

Financialization — “the increasing importance of financial markets, financial motives, financial institutions, and financial elites in the operation of the economy” — is a process that began in the 1980s with the removal of barriers to capital mobility. Global capital flows rose from about 5 percent of world GDP in the mid-1990s to about 20 percent in 2007. This is about three times faster than world trade flows. Increases in capital mobility helped facilitate the emergence of large imbalances between creditor countries with large current account surpluses and debtors with large current account deficits. According to textbook economic theory, these imbalances should be self-correcting.

When a country runs a deficit, currency is flowing out of the country. If this currency does not return in the form of capital inflows, the resulting increase in supply will exert downward pressure on the currency. A less valuable currency makes your exports cheaper to international consumers and should therefore increase demand for those exports. Played out over the scale of the global economy, this should lead to equilibrium. In the lead-up to the crisis, the fact that this equilibrium was not forthcoming puzzled some economists. Deficit countries should have been experiencing large currency depreciations, given the size of their current account deficits. These depreciations should, in turn, then have increased the competitiveness of their goods.

Ben Bernanke, then chairman of the Fed, accused a number of emerging economies of “hoarding” savings to protect themselves from future crises, preventing the global economy from reaching equilibrium. In fact, deficit countries were able to maintain strong currencies because, even though there was relatively little demand for their goods, there was strong demand for their assets — particularly financial assets. The main reason for the high demand for UK and US assets was the financial deregulation undertaken by neoliberal governments in these states in the 1980s, which facilitated a dramatic expansion in the provision of private credit to individuals, businesses, and financial institutions.

In the UK, consumer debt — primarily composed of mortgage lending — reached 148 percent of household disposable incomes in 2008, the highest it has ever been. While UK banks’ lending to the non-financial economy rose 50 percent between 2005-8, their lending to other financial institutions rose by 260 percent. Capital from the rest of the world flowed into banks in the UK and the US, which were generating significant returns from this lending.

Google shapes are thought and we have no idea.

• What’s The Biggest Influence On The Way We Think? (G.)

Google search is in a different league from earlier tools, and so the consequences of being dependent on it are more serious and far-reaching – for two inter-related reasons. The first is that it can influence what you think you know and shape the way you think because it knows more about you than you realise. And secondly, it’s not a passive tool that you own and control, but the property of a huge corporation that has acquired strange – and in some ways unprecedented – powers. Ten years ago, Nicholas Carr published a striking article – “Is Google Making Us Stupid?” – in the Atlantic. The title was misleading because the thrust of the piece was actually about how the internet might be messing with our brains, and in that sense Carr was using Google as a proxy for the technology in general.

Which is a pity because there are plenty of important questions to be asked about Google’s impact on the way we think. Its search results, for example, are heavily influenced by how many websites it finds that are supposedly relevant to a query. Sometimes, that’s fine. But sometimes it’s toxic – yet many people think it provides the “truth”. And because people’s search queries can sometimes be very revealing, the company knows more about people’s innermost secrets, fears and fantasies than even their friends or partners. We ask Google questions that we would not breathe to any living soul.

So Google, as philosopher Benjamin Curtis points out, is anything but a passive cognitive tool. Its current offerings, boosted by machine learning algorithms, are increasingly suggestive. Its Maps not only provide navigational help but give us “personalised location suggestions that it thinks will interest us”. Gmail makes helpful suggestions about what to type in a reply and Google News highlights stories that it believes we will find interesting. “All of this,” says Curtis, “removes the very need to think and make decisions for ourselves.” It “fills gaps in our cognitive processes, and so fills gaps in our minds”.

In two short decades, therefore, Google has gone from being a geeky delight to something that influences the way we think. All of which brings to mind something that John Culkin, a buddy of Marshall McLuhan, said many years ago: “We shape our tools and then our tools shape us.” Amen to that. And you can Google him to check the quote.

Debt Rattle July 6 2015

Jul 062015

July 6, 2015 Posted by Raúl Ilargi Meijer at 12:23 pm Finance Tagged with: IOU, Krugman, Piketty, polar bears, referendum, Steve Keen, Troika, Varoufakis 9 Responses »

DPC ‘On the beach, Palm Beach’ 1905

• Minister No More! (Yanis Varoufakis)

• Our NO Is A Majestic, Big YES To A Democratic, Rational Europe! (Varoufakis)

• Yanis Varoufakis: Why Bold, Brash Greek Finance Minister Had To Go (Guardian)

• Discussing Syriza’s Stunning Victory On The BBC (Steve Keen)

• Defiant Greeks Reject EU Demands As Syriza Readies IOU Currency (AEP)

• Yanis Varoufakis: Greece’s ‘Erratic Marxist’ (AFP)

• What Are the Geostrategic Implications of a Grexit? (Foreign Policy)

• Greece Votes No — Now What? (Peter Spiegel)

• Why The Yes Campaign Failed In Greece (Wolfgang Münchau)

• UN Debt Expert Says Greece Can’t Take More Austerity (Reuters)

• Europe Wins (Paul Krugman)

• Ending Greece’s Bleeding (Paul Krugman)

• Thomas Piketty: “Germany Has Never Repaid.” (Medium)

• We May Soon Be Able To See Polar Bears Only In Picture Books (MD)

Sorry to see him go, but he may be better able to lead things from the background.

• Minister No More! (Yanis Varoufakis)

The referendum of 5th July will stay in history as a unique moment when a small European nation rose up against debt-bondage. Like all struggles for democratic rights, so too this historic rejection of the Eurogroup’s 25th June ultimatum comes with a large price tag attached. It is, therefore, essential that the great capital bestowed upon our government by the splendid NO vote be invested immediately into a YES to a proper resolution – to an agreement that involves debt restructuring, less austerity, redistribution in favour of the needy, and real reforms.

Soon after the announcement of the referendum results, I was made aware of a certain preference by some Eurogroup participants, and assorted ‘partners’, for my… ‘absence’ from its meetings; an idea that the Prime Minister judged to be potentially helpful to him in reaching an agreement. For this reason I am leaving the Ministry of Finance today. I consider it my duty to help Alexis Tsipras exploit, as he sees fit, the capital that the Greek people granted us through yesterday’s referendum. And I shall wear the creditors’ loathing with pride.

We of the Left know how to act collectively with no care for the privileges of office. I shall support fully Prime Minister Tsipras, the new Minister of Finance, and our government. The superhuman effort to honour the brave people of Greece, and the famous OXI (NO) that they granted to democrats the world over, is just beginning.

There is no democratic rational Europe.

• Our NO Is A Majestic, Big YES To A Democratic, Rational Europe! (Varoufakis)

On the 25th of January, dignity was restored to the people of Greece. In the five months that intervened since then, we became the first government that dared raise its voice, speaking on behalf of the people, saying NO to the damaging irrationality of our extend-and-pretend ‘Bailout Program’.

We
• spread the word that the Greek ‘bailouts’ were exercises whose purpose was intentionally to transfer private losses onto the shoulders of the weakest Greeks, before being transferred to other European taxpayers
• articulated, for the first time in the Eurogroup, an economic argument to which there was no credible response
• put forward moderate, technically feasible proposals that would remove the need for further ‘bailouts’
• confined the troika to its Brussels’ lair
• internationalised Greece’s humanitarian crisis and its roots in intentionally recessionary policies
• spread hope beyond Greece’s borders that democracy can breathe within a monetary union hitherto dominated by fear.

Ending interminable, self-defeating, austerity and restructuring Greece’s public debt were our two targets. But these two were also our creditors’ targets. From the moment our election seemed likely, last December, the powers-that-be started a bank run and planned, eventually, to shut Greece’s banks down. Their purpose?
• To humiliate our government by forcing us to succumb to stringent austerity, and
• To drag us into an agreement that offers no firm commitment to a sensible, well-defined debt restructure.

The ultimatum of 25th June was the means by which these aims would be achieved. The people of Greece today returned this ultimatum to its senders; despite the fear mongering that the domestic oligarchic media transmitted night and day into their homes. Today’s referendum delivered a resounding call for a mutually beneficial agreement between Greece and our European partners. We shall respond to the Greek voters’ call with a positive approach to:
• The IMF, which only recently released a helpful report confirming that Greek public debt was unsustainable
• The ECB, the Governing Council of which, over the past week, refused to countenance some of the more aggressive voices within
• The European Commission, whose leadership kept throwing bridges over the chasm separating Greece from some of our partners.

Our NO is a majestic, big YES to a democratic Europe. It is a NO to the dystopic vision of a Eurozone that functions like an iron cage for its peoples. It is a loud YES to the vision of a Eurozone offering the prospect of social justice with shared prosperity for all Europeans.

Curious piece by Helena Smith

• Yanis Varoufakis: Why Bold, Brash Greek Finance Minister Had To Go (Guardian)

When historians look back at the great Greek debt crisis, the figure of Yanis Varoufakis will feature large. Bold and brash, he did more to internationalise the folly of austerity politics than any other member of the radical left government of Athens. Alexis Tsipras, the young prime minister, was much indebted to him, and Varoufakis’s resignation was quickly followed by effusive praise. “The prime minister feels the need to thank him for his ceaseless effort to promote the positions of the government and the interests of the Greek people under very difficult circumstances,” government spokesman Gavriel Sakellaridis announced.

Varoufakis may have been forced to leave front-line politics, but he does so hugely vindicated by the historic no vote delivered by Greeks on Sunday. There are not a few in Athens today who believe he is also a victim of his own success. The resounding rejection of further belt-tightening in a referendum that pitted Greece against all its eurozone partners was a high-stakes gamble associated squarely with the 54-year-old’s penchant for game theory and buccaneering style. The morning after, he had to go. In announcing his resignation, the controversial finance minister recognised that of all the impediments to a prospective deal (and there are still many) he would be the biggest.

Even by the standards of a crisis that long ago dispensed with diplomatic niceties, the combative politician had pushed the boundaries of acceptable fighting talk too far. On the eve of the vote, he accused Europe of indulging in terrorism, saying it was instilling fear in people in its bid to get Greece to acquiesce to “neoliberal dogmas.” In April, when eurozone counterparts expressed exasperation at his hectoring and lecturing style after an especially explosive Eurogroup, Varoufakis had felt fit to announce: “They are unanimous in their hate for me – and I welcome their hatred.”

By June, when it became apparent that Varoufakis would take things to the brink, senior Greek government officials in Athens were also finding it hard to contain their consternation. Many were enraged by tactics they saw as deliberately confrontational and a danger to the country’s relationship with Europe. Varoufakis’s showy lifestyle and shameless narcissism also jarred. But his apparent endorsement of a parallel currency and IOUs appears to have been the straw that broke the camel’s back. His ability to represent Greece abroad was over. Ever the maverick, Varoufakis is unlikely to vanish overnight. Although never a member of the ruling Syriza party, he remains an MP and, very possibly, will continue to influence Tsipras behind the scenes. There are few who doubt he will also be working on an unexpurgated version of the euro crisis, Varoufakis style.

He has already said he is looking forward to life on the backbenches. But will his sacrifice be enough to placate creditors? Varoufakis leaves an economy in meltdown, banks closed, capital controls imposed and shortages growing by the hour. If his removal is not enough, the mess that has also been the price of his brinkmanship may well end up being his lasting legacy – a legacy that historians will not forget.

On the nose.

• Discussing Syriza’s Stunning Victory On The BBC (Steve Keen)

After yesterday’s remarkable victory in the Referendum, I was interviewed on the BBC News Channel. Someone has posted a recording from the BBC News Channel stream on YouTube.

The parallel currency issue is a big one.

• Defiant Greeks Reject EU Demands As Syriza Readies IOU Currency (AEP)

Greek voters have rejected the austerity demands of Europe’s creditor powers by a stunning margin, sweeping aside warnings that this could lead to the collapse of the banking system and a return to the drachma. Early returns in the historic referendum showed the No side -Oxi in Greek =- running at 61pc versus 39pc for the Yes side as the Greek people turned out en masse to vent their anger over six years of economic depression and national humiliation. A volcanic revolt appeared to have swept through Greek islands. The shock result effectively calls the bluff of eurozone leaders and the heads of the European Commission and Parliament, forcing them either to back down or carry out drastic threats to eject Greece from monetary union.

The European Central Bank faces an immediate decision over whether to continue freezing emergency liquidity assistance (ELA) for Greek banks at €89bn, a stance that would amount to liquidity suffocation. “If they do that, the situation would be very serious. That would be pretty close to trying to bring down the government,” said Euclid Tsakalotos, the country’s chief debt negotiator. The Bank of Greece (BoG) said on Sunday evening that it will make a formal request to the ECB for fresh support. The EU’s leadership was in utter confusion as it became clear during the day that support was swinging back to the “No” camp, despite blanket coverage from the private TV stations warning that a “No” meant Armageddon. “The Greek people have proven that they cannot be blackmailed, terrorized, and threatened,” said Panos Kammenos, the defence minister and head of the coalition’s ANEL party.

French president Francois Hollande said he would bend over backwards to keep Greece in the euro despite voting no. He is to meet German Chancellor Angela Merkel in Paris on Monday to draw up a joint response to what has turned into the biggest EU fiasco since the rejection of the European constitution by France and Holland in 2005. Martin Schulz, head of the European Parliament, was still insisting on Sunday that a “No” vote must mean expulsion from the euro, but his view is becoming untenable. Jean-Claude Juncker, the Commission’s chief, is equally trapped by his own rhetoric after warning last week that a No vote would be a rejection of Europe itself, leading to calamitous consequences. Top Syriza officials say they are considering drastic steps to boost liquidity and shore up the banking system, should the ECB refuse to give the country enough breathing room for a fresh talks.

“If necessary, we will issue parallel liquidity and California-style IOU’s, in an electronic form. We should have done it a week ago,” said Yanis Varoufakis, the finance minister. California issued temporary coupons to pay bills to contractors when liquidity seized up after the Lehman crisis in 2008. Mr Varoufakis insists that this is not be a prelude to Grexit but a legal action within the inviolable sanctity of monetary union. Mr Varoufakis and ministers will hold an emergency meeting tonight with the private banks and the governor of the Greek central bank, Yannis Stournaras, to decide what to do before the cash reserves of the four big lenders dry up tomorrow. Louka Katseli, head of the Hellenic bank Association, said ATM machines will run out of money within hours of the vote. One official say that Eurobank was “flat out of money” late on Sunday, even though Greek depositors have been limited to €60 a day since capital controls were imposed a week ago.

“Varoufakis’s father Giorgos told the Greek daily Ethnos that his son’s critics “want to run him down because he is competent.”

• Yanis Varoufakis: Greece’s ‘Erratic Marxist’ (AFP)

Yanis Varoufakis, Greece’s finance minister who resigned on Monday despite the government having secured a resounding victory in a weekend referendum, rose to fame and infamy this year for his urban-cool look, his abrasive style, and acerbic attacks on austerity. In a shock announcement just hours after Sunday’s referendum results on bailout terms were announced, Varoufakis said he was quitting to help Prime Minister Alexis Tsipras in ensuing negotiations with creditors. “Soon after the announcement of the referendum results, I was made aware of a certain preference by some Eurogroup participants, and assorted ‘partners’, for my… ‘absence from its meetings; an idea that the Prime Minister judged to be potentially helpful to him in reaching an agreement. For this reason I am leaving the Ministry of Finance today,” Varoufakis said on his blog.

During the past five months of negotiations between Athens and its international creditors, the self-described “erratic Marxist” seemed more at ease chatting with unemployed anarchists than with fellow European finance ministers, who often groaned about his blunt negotiating tactics. European Economic Affairs chief Pierre Moscovici commented that Varoufakis “is a smart person, not always easy, but smart.” His straight-talking style produced notable moments including his characterisation of the austerity imposed on Greece as “fiscal waterboarding”. After negotiations broke down between Greece and its creditors, Varoufakis slammed Europese governance. “This is not the way to run a monetary union. This is a travesty. It’s a comedy of errors for five years now, Europe has been extending and pretending,” Varoufakis said in a BBC interview.

After becoming finance minister in January, there were some growing pains as he adapted to the burning glare of the global media spotlight. He allowed himself to be pictured in Paris Match magazine at a piano and dining in style with his wife on the roof terrace of his “love nest at the foot of the Acropolis”, while telling the magazine how he abhorred the “star system”. Though the maverick minister has always taken a stance protecting ordinary Greeks, his background was anything but common. He is the son of Giorgos Varoufakis, who at 90 still heads one of Greeces leading steel producers, Halyvourgiki. He also attended the Moraitis School, which has alumni including prominent Greek leaders and artists.

His early career was spent at the English universities of Essex, East Anglia and at Cambridge, and he has often been linked with research into game theory. In 1998 Varoufakis moved to Australia, and he is now a dual Greek and Australian citizen. He moved back to Greece in 2000 to teach at the University of Athens, and in January 2013 accepted a post at the University of Texas in Austin. Varoufakis has had a rebellious streak since a young age. He told the BBC he has deliberately misspelled his name Yanis, writing it with one “n”, since a confrontation with a teacher in elementary school. “I had an aesthetic problem with the double ‘n’, he said. “So I decided to write my name with one. My teacher gave me a bad grade, which made me very angry and I’ve kept writing my name with one ‘n’ ever since.”

As finance minister Varoufakis, his head shaved clean, shook up the staid world of EU summits by arriving to meetings in rock-star-style leather jackets and untucked shirts. He was quickly dubbed “Greece’s Bruce Willis”. His swagger and penchant for lecturing annoyed some EU counterparts at meetings on Greece’s debt and he was eventually pulled from frontline negotiations. Varoufakis’s father Giorgos told the Greek daily Ethnos that his son’s critics “want to run him down because he is competent.” “Yanis is a very good boy, and is always telling the prime minister what to do, which is why he adores him,” he said. A prolific blogger, Yanis Varoufakis has written several books, including “The Global Minotaur: America, Europe and the Future of the Global Economy”.

Varoufakis has said he believes his shattered country can only recover once it has rejigged the terms of an international bailout, and said early on that Greece’s massive debt could not be paid back in full. The minister said he would step down if disavowed by Greek voters who vote Sunday on whether they accept or reject bailout conditions that are no longer on the table. In his latest blog, Varoufakis gave reasons why Greeks should vote ‘no’ in the referendum, one being that the country “will” stay in the euro regardless of the outcome. He told Bloomberg TV that he would rather “cut my arm off” than stay on as minister in the case of a ‘yes’ vote.

NATO worries.

• What Are the Geostrategic Implications of a Grexit? (Foreign Policy)

At the moment, it is unclear how Greece will ultimately fare in the current duel of wills with the Troika over its technical default, the upcoming referendum, and the possibility of a continuation of the long-running bailout drama. The two sides are locked in acrimonious finger-pointing, Greek banks are shuttered for the week, and the logical but ever elusive diplomatic and economic solution — a reasonable negotiation between the parties — seems further away than ever. As a proud Greek-American, I am saddened by the situation. Meanwhile, the July 5 referendum is judged too close to call at the moment, and most Greeks will likely be confused about the implications and uncertain how to vote.

Macroeconomic theory appears to have been the first casualty of the process, and the doomsday economic scenarios — a crashed Greek economy, a battered if not broken euro, and a deeply shaken European project — are looming large on the horizon. But in the midst of all of the appropriate Sturm und Drang of the Greek financial and economic crisis, it is worth considering the geostrategic implications of the “Grexit” — which have been largely ignored. Let’s face it: A Greece that goes crashing out of the eurozone will be an angry, disaffected, and battered nation — but one that will continue to hold membership in the European Union and NATO, both consensus-driven organizations. (“Consensus-driven” means that without unanimous consent among all members, the organization cannot take decisions or execute effective operational actions.)

Many times in NATO councils as the supreme allied commander I watched the agonizing process of building consensus, one compromise at a time. In both the EU and NATO, an uncooperative Greece in the future could time and time again put the organizations “in irons,” which is to say becalmed and not moving effectively forward. This could manifest itself very quickly in, for example, decisions about sanctions against Russia (from which Greece is avidly courting support and funding, logically enough). It could easily affect day-to-day governance in the European Union over issues from negotiating the Transatlantic Trade and Investment Partnership to agricultural subsidies to what should be done about refugee flows across the Mediterranean. Greece could become a troublesome and obstructionist actor in complex negotiations involving the EU, such as the Iranian nuclear treaty efforts.

More Troika hubris.

• Greece Votes No — Now What? (Peter Spiegel)

Even before the polls closed in Greece, Emmanuel Macron, the French economic minister, insisted that even with a No vote in Sunday night’s referendum, talks must resume between the leftwing government in Athens and its eurozone creditors. But despite predictions by Greek ministers that a new bailout deal could be just days away, other than Mr Macron and his French colleagues, there are few elsewhere in the eurozone who predicted a resounding No would lead to much more than continued stalemate. If that is the result of overwhelming rejection of creditors’ terms, it would mean a slow march to Greece exiting the eurozone. “Greece has just signed its own suicide note,” predicted Mujtaba Rahman, head of European analysis at the Eurasia Group risk consultancy.

“Only the French will want to salvage something from this vote, but they’re unlikely to win the debate in the eurogroup.” Angela Merkel, the German chancellor, is due to fly to Paris on Monday for consultations with President François Hollande on what steps to take next. The most critical immediate response to the vote is likely to be in Frankfurt, where the European Central Bank’s policy making governing council is due to meet on Monday afternoon. With Greek voters unequivocally rejecting the bailout proposal, ECB policy makers may find it difficult to resist the argument made by council hardliners, particularly Jens Weidmann, the Bundesbank president, that the Greek government-backed securities the country’s banks use as collateral for emergency loans are heading to default.

The key date in the crisis is now July 20, when Greece owes €3.5bn on a bond held by the ECB. If Athens defaults on that bond, it would be almost impossible for the ECB to continue accepting collateral from Greek banks, and the €89bn in emergency liquidity assistance (ELA) would be withdrawn, devastating Greece’s banking sector. Without central bankers providing euros, Athens would be forced to print its own currency to reopen banks, and the dice would be cast on the path to “Grexit” from the eurozone.

“Contempt for democracy and economic illiteracy are not merely tactical errors.”

• Why The Yes Campaign Failed In Greece (Wolfgang Münchau)

It is not that hard to explain why Alexis Tsipras won the referendum by a landslide. It is a lot harder to see what’s going to happen now. His opponents, both inside Greece and in the European Union went wrong because of serial misjudgments, ranging from the petty to the monumental. For me, three stand out. The biggest was the clearly concerted intervention by several senior EU politicians, who said that a No vote would lead to Grexit, a Greek exit from the eurozone. One of them was Sigmar Gabriel, the German economics minister and SPD chief. He even doubled up on this threat right after the results came out. The Greeks correctly interpreted these threats as an attempt to interfere in the democratic process of their country.

The news last week that eurozone officials tried to suppress the latest debt sustainability analysis of the International Monetary Fund did not help either. The IMF report essentially revealed that the Greek government had been right after all to demand debt relief. The rest of the EU gave the impression that it wanted to rig the referendum, and it did not even bother to conceal this. If you have been unemployed for five years, with no prospect of a job, it makes no difference whether the money you do not get is denominated in euros, or in drachma.

The second error of the Yes campaign was a failure to explain how the bailout programme could work economically. This is not a debate between Keynesian and neoclassical economics, the kind that keeps us endlessly busy on these pages. The Greek referendum united economists with very diverse views of how the world works, including Paul Krugman, Jeffrey Sachs and Hans-Werner Sinn. There is no reputable economic theory according to which an economy that has experienced an eight-year-long depression requires a new round of austerity to bring about economic adjustment.

The third monumental error was arrogance. The Yes supporters thought they had it nailed. Like the British Labour party before the last general election, they had been relying on polls, which turned out to be wildly inaccurate. What I found most galling was the argument that Grexit would bring about an economic catastrophe, as though the catastrophe had not already happened. If you have been unemployed for five years, with no prospect of a job, it makes no difference whether the money you do not get is denominated in euros, or in drachma. Contempt for democracy and economic illiteracy are not merely tactical errors. Those two “qualities” are now the remaining ideological planks of what is left of the European project. Greece is a reminder that the European monetary union, as it is constructed, is fundamentally unsustainable. This means it will need to be fixed, or it will end at some point.

“..if the parties involved in the Greek tragedy paid more serious attention to what human rights law has to say, everything would be easier..“

• UN Debt Expert Says Greece Can’t Take More Austerity (Reuters)

Greece cannot take any more austerity as it will cause more social unrest and lessen the chance of an economic recovery, a United Nations debt expert said on Monday. Greeks overwhelmingly rejected conditions of a rescue package from creditors on Sunday, throwing the future of the country’s euro zone membership into further doubt and deepening a standoff with lenders. Juan Pablo Bohoslavsky, the U.N. Independent Expert on Foreign Debt, told reporters in Beijing that Greece’s creditors in the European Union should have paid more attention to what international law says on the matter of debt. “I have the impression that the EU had forgotten that international human rights law plays and should play a key role in finance. The international community attaches great importance to the interlinks between human rights and finance,” said Bohoslavsky, who operates under the auspices of the U.N.’s High Commissioner for Human Rights.

“The message here is that if the parties involved in the Greek tragedy paid more serious attention to what human rights law has to say, everything would be easier, for the Greek population particularly,” he added. Bohoslavsky said the austerity demanded of Greece had not worked, adding he will visit Greece later in the year. “It’s very clear the message from the Greek population – no more austerity measures. Actually if you look at the figures, austerity measures didn’t really help the country to recover.” In a separate statement, Bohoslavsky said he was concerned at reports of food and medicine shortages, and that he was asking to meet EU officials to remind them of their human rights obligations to Greece.

Bohoslavsky, visiting at the invitation of China’s government, said he carried a message of the need for human rights to be considered in global lending, something important for China which is setting up two new multilateral lenders – the Asian Infrastructure Investment Bank and the New Development Bank. “A narrow idea of efficiency in which human rights plays a limited role should not find its way into these two banks,” he said. China has promised that the infrastructure bank will follow global best practices in transparency and governance. Rights groups often criticize China for its “no-strings” loans to countries, especially in Africa, for encouraging corruption and abuses with a lack of oversight.

“.. European institutions have just been saved from their own worst instincts..”

• Europe Wins (Paul Krugman)

Tsipras and Syriza have won big in the referendum, strengthening their hand for whatever comes next. But they’re not the only winners: I would argue that Europe, and the European idea, just won big — at least in the sense of dodging a bullet. I know that’s not how most people see it. But think of it this way: we have just witnessed Greece stand up to a truly vile campaign of bullying and intimidation, an attempt to scare the Greek public, not just into accepting creditor demands, but into getting rid of their government. It was a shameful moment in modern European history, and would have set a truly ugly precedent if it had succeeded.

But it didn’t. You don’t have to love Syriza, or believe that they know what they’re doing — it’s not clear that they do, although the troika has been even worse — to believe that European institutions have just been saved from their own worst instincts. If Greece had been forced into line by financial fear mongering, Europe would have sinned in a way that would sully its reputation for generations. Instead, it’s something we can, perhaps, eventually regard as an aberration. And if Greece ends up exiting the euro? There’s actually a pretty good case for Grexit now — and in any case, democracy matters more than any currency arrangement.

ECB needs to start acting as a central bank.

• Ending Greece’s Bleeding (Paul Krugman)

Europe dodged a bullet on Sunday. Confounding many predictions, Greek voters strongly supported their government’s rejection of creditor demands. And even the most ardent supporters of European union should be breathing a sigh of relief. Of course, that’s not the way the creditors would have you see it. Their story, echoed by many in the business press, is that the failure of their attempt to bully Greece into acquiescence was a triumph of irrationality and irresponsibility over sound technocratic advice. But the campaign of bullying — the attempt to terrify Greeks by cutting off bank financing and threatening general chaos, all with the almost open goal of pushing the current leftist government out of office — was a shameful moment in a Europe that claims to believe in democratic principles. It would have set a terrible precedent if that campaign had succeeded, even if the creditors were making sense.

What’s more, they weren’t. The truth is that Europe’s self-styled technocrats are like medieval doctors who insisted on bleeding their patients — and when their treatment made the patients sicker, demanded even more bleeding. A “yes” vote in Greece would have condemned the country to years more of suffering under policies that haven’t worked and in fact, given the arithmetic, can’t work: austerity probably shrinks the economy faster than it reduces debt, so that all the suffering serves no purpose. The landslide victory of the “no” side offers at least a chance for an escape from this trap. But how can such an escape be managed? Is there any way for Greece to remain in the euro? And is this desirable in any case?

The most immediate question involves Greek banks. In advance of the referendum, the European Central Bank cut off their access to additional funds, helping to precipitate panic and force the government to impose a bank holiday and capital controls. The central bank now faces an awkward choice: if it resumes normal financing it will as much as admit that the previous freeze was political, but if it doesn’t it will effectively force Greece into introducing a new currency. Specifically, if the money doesn’t start flowing from Frankfurt (the headquarters of the central bank), Greece will have no choice but to start paying wages and pensions with i.o.u.s, which will de facto be a parallel currency — and which might soon turn into the new drachma.

Suppose, on the other hand, that the central bank does resume normal lending, and the banking crisis eases. That still leaves the question of how to restore economic growth. In the failed negotiations that led up to Sunday’s referendum, the central sticking point was Greece’s demand for permanent debt relief, to remove the cloud hanging over its economy. The troika — the institutions representing creditor interests — refused, even though we now know that one member of the troika, the International Monetary Fund, had concluded independently that Greece’s debt cannot be paid. But will they reconsider now that the attempt to drive the governing leftist coalition from office has failed?

Good analysis.

• Thomas Piketty: “Germany Has Never Repaid.” (Medium)

In a forceful interview with German newspaper Die Zeit, the star economist Thomas Piketty calls for a major conference on debt. Germany, in particular, should not withhold help from Greece. This interview has been translated from the original German. Since his successful book, “Capital in the Twenty-First Century,” the Frenchman Thomas Piketty has been considered one of the most influential economists in the world. His argument for the redistribution of income and wealth launched a worldwide discussion. In a interview with Georg Blume of DIE ZEIT, he gives his clear opinions on the European debt debate.

DIE ZEIT: Should we Germans be happy that even the French government is aligned with the German dogma of austerity?
Thomas Piketty: Absolutely not. This is neither a reason for France, nor Germany, and especially not for Europe, to be happy. I am much more afraid that the conservatives, especially in Germany, are about to destroy Europe and the European idea, all because of their shocking ignorance of history.

ZEIT: But we Germans have already reckoned with our own history.
Piketty: But not when it comes to repaying debts! Germany’s past, in this respect, should be of great significance to today’s Germans. Look at the history of national debt: Great Britain, Germany, and France were all once in the situation of today’s Greece, and in fact had been far more indebted. The first lesson that we can take from the history of government debt is that we are not facing a brand new problem. There have been many ways to repay debts, and not just one, which is what Berlin and Paris would have the Greeks believe. “Germany is the country that has never repaid its debts. It has no standing to lecture other nations.”

ZEIT: But shouldn’t they repay their debts?
Piketty: My book recounts the history of income and wealth, including that of nations. What struck me while I was writing is that Germany is really the single best example of a country that, throughout its history, has never repaid its external debt. Neither after the First nor the Second World War. However, it has frequently made other nations pay up, such as after the Franco-Prussian War of 1870, when it demanded massive reparations from France and indeed received them. The French state suffered for decades under this debt. The history of public debt is full of irony. It rarely follows our ideas of order and justice.

ZEIT: But surely we can’t draw the conclusion that we can do no better today?
Piketty: When I hear the Germans say that they maintain a very moral stance about debt and strongly believe that debts must be repaid, then I think: what a huge joke! Germany is the country that has never repaid its debts. It has no standing to lecture other nations.

Unspeakable sadness fills my heart.

• We May Soon Be Able To See Polar Bears Only In Picture Books (MD)

According to a recent report, polar bears may soon go extinct if global warming continues at the current flabbergasting rate. And about one third of the furry animals face risk of extinction in no more than ten years, the report also showed. Study authors said that reducing the rate of climate change may save polar bears on the long run. Other methods of trying to shield them from an ever warming ocean and dwindling food stocks have only short-term effects, researchers explained. As ice sheets continue to melt, polar bears are forced to retreat inland to find something to eat. While that may be a temporary solution during winter time, in summer months the move is no longer viable.

Loss of sea ice, which the bears use in their hunt for prey, and fewer food sources both inland and out in the sea are two major factors that may force polar bears to soon go extinct. But there are also some other threats including oil rigs, new diseases and trans-Arctic vessels. Yet these factors only pose a “negligible” threat on polar bear populations, study authors wrote in their report. The hidden enemy, authors claim, are greenhouse emissions. In an attempt to assess their effects on the bears’ habitat loss, scientists employed two models. In the first model, emissions were at the current levels we all experience. The second model tried to simulate Arctic conditions if those emissions were lower and climate change more stable.

The first model showed that at the current pace of sea ice loss and food stock reduction some polar bear populations would soon reach a dramatic decline by 2025. In the second model, the scenario emerged roughly 25 years later. Yet both models shared the same conclusion – some polar bear populations may soon go extinct. Even though we may reduce harmful gas emissions by that time, populations would still be affected, scientists said,

Debt Rattle March 11 2015

Mar 112015

March 11, 2015 Posted by Raúl Ilargi Meijer at 6:23 am Finance Tagged with: debt, dollar, EM, empire, eurozone, Greece, Nuland, oil, Piketty, rate hike, stocks, Ukraine 2 Responses »

DPC Grace Church, New York 1905

• The Blistering Pace Of Dollar’s Rally Is Rattling Markets (MarketWatch)

• EM Currency Turmoil As US Rate-Hike Jitters Bite (CNBC)

• Here’s Why Draghi’s Inflation Bomb Could Prove to Be a Dud (Bloomberg)

• Stronger Dollar Sends U.S. Stocks to Biggest Drop in Two Months (Bloomberg)

• Get Ready For A Much Bigger Oil Shock (CNBC)

• Thomas Piketty on the Eurozone: ‘We Have Created a Monster’ (Spiegel)

• Why Understanding Money Matters in Greece (Rob Parenteau)

• Varoufakis Unsettles Germans With Admissions In Documentary (Reuters)

• Tsipras Says Will Pursue German War Reparations (Kathimerini)

• Greece Got a ‘Deal’ in February, But Things Still Haven’t Calmed Down (Bloomberg)

• Eurozone Central Bank Buying Crushes Yield Curves (Bloomberg)

• Why Does America Continue To Subsidize Housing For The Wealthy? (Guardian)

• China’s Solution to $3 Trillion Debt Is to Deal with It Later (Bloomberg)

• Yellen Meets Senate Bank Chief With Fed Transparency in Focus (Bloomberg)

• Chaos: Practice and Applications (Dmitry Orlov)

• ‘We’ll Buy Reverse Gas Supplies At $245’- Ukraine’s President (RT)

• US Applies Pressure to States Opposing Anti-Russian Sanctions: Nuland (Sputnik)

• It’s NATO That’s Empire-Building, Not Putin (Peter Hitchens)

• The Blistering Pace Of Dollar’s Rally Is Rattling Markets (MarketWatch)

It’s probably not the dollar’s unrelenting march higher that is unsettling U.S. stock investors, but it might be the speed of the rally. “I think what people are concerned about is the pace of the dollar strength,” Douglas Borthwick at Chapdelaine said. “Countries can always adapt to currencies strengthening or weakening, but certainly as the dollar strengthens very, very quickly it leaves very little chance for others to adapt,” he said. On a trade-weighted basis, the dollar remains far from its highs in the mid-1980s and early 2000s, but the pace of the rise over the past half year is the second fastest in the last 40 years, noted David Woo at Bank of America Merrill Lynch.

The ICE dollar index, a measure of the U.S. unit against a basket of six major rivals, is up 9% since the end of last year alone to trade at its highest level since late 2003. U.S. stocks dipped significantly, leaving the S&P 500 down 0.9% and within a whisker of erasing its 2015 gain after clawing back some of its earlier decline. The long-term correlation between the direction of the dollar and the S&P 500 is near zero, analysts note. But there have been periods when the dollar and stocks marched either in lock step or in opposite directions for significant periods. In the end, it all seems to come down to context. If the dollar rises because investors are confident about the future of the economy, then stocks can rise, too, as was the case in the late 1990s.

“..currencies where countries have higher deficits or fiscal issues are under increased selling pressure..”

• EM Currency Turmoil As US Rate-Hike Jitters Bite (CNBC)

Emerging market currencies were hit hard on Tuesday, while the euro fell to a 12-year low versus the U.S. dollar, on rising expectations for a U.S. interest rate rise this year. The South African rand fell as much as 1.5% to a 13-year low at around 12.2700 per dollar, while the Turkish lira traded within sight of last Friday’s record low. The Brazilian real fell over one% to its lowest level in over a decade. It was last trading at about 3.1547 to the dollar. Meanwhile, Europe’s single currency fell as low as $1.0731, its lowest level in 12 years, fueling talk of a move closer to parity against the greenback. A perception that a U.S. rate hike could come sooner rather than later has been building since the release of Friday’s stronger-than-expected U.S. non-farm payrolls report.

Analysts said that concerns about fiscal issues were compounding weakness in some currencies. In the case of the euro, the massive quantitative easing (QE) program just unleashed by the ECB weighed. “It’s a case of broad-based dollar strength amid increased expectations of a U.S. rate hike this year,” Lee Hardman at Bank of Tokyo-Mitsubishi told CNBC. “So currencies where countries have higher deficits or fiscal issues are under increased selling pressure, such as the South Africa rand, the Turkish lira and the Brazilian real. The euro is weakening on its own accord because of QE.”

“..the higher the dollar goes the more likely investors will flee developing nations..”

• Here’s Why Draghi’s Inflation Bomb Could Prove to Be a Dud (Bloomberg)

Mario Draghi’s inflation bomb could prove to be a dud. That’s because the weakness in the euro resulting from the European Central Bank’s €1.1 trillion quantitative-easing program risks being more than offset globally by the deflationary impact of a stronger dollar. Making that case as the euro trades around its lowest in 11 years against the greenback is David Woo, head of global rates and currencies at Bank of America Merrill Lynch in New York. He’s telling clients that pressure from a rising dollar threatens to rattle emerging markets, undermine U.S. stocks and curb commodities prices. Here’s how:

First, the higher the dollar goes the more likely investors will flee developing nations; that will make their borrowings in the U.S. currency more expensive, damaging their already-shaky outlook for growth. As Woo notes, the Turkish lira and Mexican peso have both reached or traded near all-time lows against the dollar in the past few days and Brazil’s real is at its weakest since 2004. China, which manages the value of its yuan against a basket of other currencies, may be forced to devalue to keep its products cheap in the international marketplace.

Next, because commodities are priced in dollars, the higher the greenback goes the more downward pressure will be applied to oil prices. Bank of America already says the likelihood is greater that crude falls rather than rises. Finally, Woo estimates the dollar’s rise is starting to undermine profits at home. U.S. companies in the Standard & Poor’s 500 Index get 40% of their earnings from overseas and the index has fallen in 19 out of 27 trading days this year in which the greenback gained. “The obvious implication is that investors are becoming concerned about the ability of the U.S. economy to cope with the strengthening dollar,” Woo said in a report to clients Monday. “The decline of euro/dollar below 1.10 may be less benign than it may appear at first.”

Pretty big losses.

• Stronger Dollar Sends U.S. Stocks to Biggest Drop in Two Months (Bloomberg)

U.S. stocks fell the most in two months as the dollar strengthened to near a 12-year high versus the euro amid speculation the Federal Reserve is moving closer to raising interest rates. Intel and Cisco lost at least 2.4% as technology companies in the Standard & Poor’s 500 Index led declines. United Technologies Corp., Goldman Sachs and Home Depot dropped more than 1.8% to pace losses among the biggest companies. The S&P 500 retreated 1.7% to 2,044.16 at the close in New York, falling below its average price for the past 50 days for the first time since Feb. 9. The Dow Jones Industrial Average lost 332.78 points, or 1.9%, to 17,662.94. Both indexes erased gains for the year. The Nasdaq 100 Index fell 1.9%. About 7.1 billion shares changed hands on U.S. exchanges, 2.8% above the three-month average.

“A continuation of dollar strength and euro destruction is certainly raising some concerns,” Michael James at Wedbush Securities said in a phone interview. “I don’t think there was any one specific event or item that caused this, but the fact that it’s a trend that’s been going on for the last several weeks is concerning given the levels we’re at now.” Concern the Fed may start raising interest rates this year amid a strengthening economy has weighed on equities and helped boost the dollar. In his last speech as president of the Fed Bank of Dallas, Richard Fisher said the central bank should begin to gradually raise rates before the economy reaches full employment to avoid triggering a recession.

“..the Iran production growth story is just one but it makes factors such as Libya’s piddly production oscillation and rig count obsessions in the US pale into insignificance.”

• Get Ready For A Much Bigger Oil Shock (CNBC)

So what’s the biggest trade in the markets right now? Could it be the one way bet on European fixed income with Draghi’s massive bond-buying program set to obliterate anyone who challenges ludicrously low bond yields? Or the tech bull position with the Nasdaq around year-2000 highs? For now let’s ignore the collapse in euro zone yield and the nose-bleeding valuations in tech and concentrate on my favourite trade – the brutal battle being fought in the oil market. Last week, InterContinental Exchange revealed that the hedge-betters and speculators were piling into the oil trade in levels not seen since the middle of last year. You remember the middle of last year, that was when crude was still at $110 per barrel, pretty much double where it is now. So are we setting ourselves up for another massive bout of volatility after a few weeks of relatively calm price action?

The longs are out in force, according to the data but are they too early in calling an end to the oil price rout? Brent may have had a fantastic rally in February, having plummeted to the low $40s region after last year’s rout. But was that a dead cat bounce ignoring the still dreadful near term fundamentals? Despite a lot of excitement about the falling rig count and the huge number of job expenditure cuts across exploration and production, there is still over-production not only in the US but also across the world. In fact, if you believe the bears, then the US will shortly run out of storage space above ground. The guys who’ve been in the industry and have seen cycle after cycle like this keep telling me that the cure for lower prices is lower prices. But when will we see supply and demand responses to $50-60 oil?

Well, many of the global wells just can’t afford to stop just yet, whether it is because of the need for Middle Eastern petro-dollars of the demanding Texan bank manager who still expects the oil well-related loan to be serviced. Surely the key factors in where we go next have still to come to the fore this year and we are still at the appetiser stage. For many, June will be the main event. That month is when the next scheduled OPEC meeting is due to take place and it is possibly the most likely time we will see a supply response from the group representing around a third of global production. The end of June just also happens to be the deadline for the Iran nuclear deal. If – and it’s a big “if” – Iran gets a framework agreement by the end of this month, the country will be desperate to ramp up production of oil as quickly as possible. And, believe me, it may take them months if not years but they really want to ramp it up.

Iran doesn’t just want to up its levels from the current 2.8 million barrels a day. It wants to first get to the 4 million barrels it was producing back in 2008 and then it wants to keep going on and on and on. That will set up Iran for a huge row with Saudi over OPEC production levels. Yes, the Iran production growth story is just one but it makes factors such as Libya’s piddly production oscillation and rig count obsessions in the US pale into insignificance. So for me the phoney war going on in the oil market at the moment may just result in a stalemate until the middle of the year. That is when we may get the real battle. The one that may just justify at least one side of the extreme calls from $20 to back up to $90 per barrel.

A morally bankrupt monster.

• Thomas Piketty on the Eurozone: ‘We Have Created a Monster’ (Spiegel)

SPIEGEL: You publicly rejoiced over Alexis Tsipras’ election victory in Greece. What do you think the chances are that the European Union and Athens will agree on a path to resolve the crisis?
Piketty: The way Europe behaved in the crisis was nothing short of disastrous. Five years ago, the United States and Europe had approximately the same unemployment rate and level of public debt. But now, five years later, it’s a different story: Unemployment has exploded here in Europe, while it has declined in the United States. Our economic output remains below the 2007 level. It has declined by up to 10% in Spain and Italy, and by 25% in Greece.

SPIEGEL: The new leftist government in Athens hasn’t exactly gotten off to an impressive start. Do you seriously believe that Prime Minister Tsipras can revive the Greek economy?
Piketty: Greece alone won’t be able to do anything. It has to come from France, Germany and Brussels. The International Monetary Fund (IMF) already admitted three years ago thatthe austerity policies had been taken too far. The fact that the affected countries were forced to reduce their deficit in much too short a time had a terrible impact on growth. We Europeans, poorly organized as we are, have used our impenetrable political instruments to turn the financial crisis, which began in the United States, into a debt crisis. This has tragically turned into a crisis of confidence across Europe.

SPIEGEL: European governments have tried to avert the crisis by implementing numerous reforms. What do mean when you refer to impenetrable political instruments?
Piketty: We may have a common currency for 19 countries, but each of these countries has a different tax system, and fiscal policy was never harmonized in Europe. It can’t work. In creating the euro zone, we have created a monster. Before there was a common currency, the countries could simply devalue their currencies to become more competitive. As a member of the euro zone, Greece was barred from using this established and effective concept.

SPIEGEL: You’re sounding a little like Alexis Tsipras, who argues that because others are at fault, Greece doesn’t have to pay back its own debts.
Piketty: I am neither a member of Syriza nor do I support the party. I am merely trying to analyze the situation in which we find ourselves. And it has become clear that countries cannot reduce their deficits unless the economy grows. It simply doesn’t work. We mustn’t forget that neither Germany nor France, which were both deeply in debt in 1945, ever fully repaid those debts. Yet precisely these two countries are now telling the Southern Europeans that they have to repay their debts down to the euro. It’s historic amnesia! But with dire consequences.

SPIEGEL: So others should now pay for the decades of mismanagement by governments in Athens?
Piketty: It’s time for us to think about the young generation of Europeans. For many of them, it is extremely difficult to find work at all. Should we tell them: “Sorry, but your parents and grandparents are the reason you can’t find a job?” Do we really want a European model of cross-generational collective punishment? It is this egotism motivated by nationalism that disconcerts me more than anything else today.

SPIEGEL: It doesn’t sound as if you are a fan of the Stability Pact, the agreement implemented to force euro-zone countries to improve fiscal discipline.
Piketty: The pact is a true catastrophe. Setting fixed deficit rules for the future cannot work. You can’t solve debt problems with automatic rules that are always applied in the same way, regardless of differences in economic conditions.

Great read. h/t Yves.

• Why Understanding Money Matters in Greece (Rob Parenteau)

As Greece staggers under the weight of a depression exceeding that of the 1930s in the US, it appears difficult to see a way forward from what is becoming increasingly a Ponzi financed, extend and pretend, “bailout” scheme. In fact, there are much more creative and effective ways to solve some of the macrofinancial dilemmas that Greece is facing, and without Greece having to exit the euro. But these solutions challenge many existing economic paradigms, including the concept of “money” itself. At the Levy Economics Institute conference held in Athens in November 2013, I proposed tax anticipation notes, or “TANs”, as a way for Greece to exit austerity without having to exit the euro.

This proposal is based on a deeper understanding of what money actually is, and the many roles that it plays in the economies we inhabit. In this regard, Abba Lerner captured the essence of modern fiat currencies, which are created out of thin air by modern states with sovereign currency arrangements. Lerner’s essential insight is contained in the following passage from over half a century ago (and, you will note, Lerner’s view informs much of the neo-chartalist view espoused by advocates of what is called Modern Monetary Theory):

The modern state can make anything it chooses generally acceptable as money…It is true that a simple declaration that such and such is money will not do, even if backed by the most convincing constitutional evidence of the state’s absolute sovereignty. But if the state is willing to accept the proposed money in payment of taxes and other obligations to itself the trick is done.

The modern state, then, imposes and enforces a tax liability on its citizens, and chooses that which is necessary to pay taxes. That means a state with a sovereign currency is never revenue constrained. In fact, the government has to first create the money before the private sector can find a way to get the money it requires to pay taxes and by government bonds. Taxes and bonds are therefore not really the source of government funding or finance. Wait, what? The government itself ultimately is the source of money required to pay for government expenditures. Taxes simply give value to money, as households and nonbank firms cannot create money – that is counterfeiting. Instead, they have to sell an asset or a product or a service to the government to get money, or they need to be beneficiaries of government corporate subsidy or household transfer programs to get money.

Weird coincidence?

• Varoufakis Unsettles Germans With Admissions In Documentary (Reuters)

Greek Finance Minister Yanis Varoufakis has described his country as the most bankrupt in the world and said European leaders knew all along that Athens would never repay its debts, in blunt comments that sparked a backlash in the German media on Tuesday. A documentary about the Greek debt crisis on German public broadcaster ARD was aired on the same day euro zone finance ministers met in Brussels to discuss whether to provide Athens with further funding in exchange for delivering reforms. “Clever people in Brussels, in Frankfurt and in Berlin knew back in May 2010 that Greece would never pay back its debts. But they acted as if Greece wasn’t bankrupt, as if it just didn’t have enough liquid funds,” Varoufakis told the documentary.

“In this position, to give the most bankrupt of any state the biggest credit in history, like third class corrupt bankers, was a crime against humanity,” said Varoufakis, according to a German translation of his comments. It was unclear when the program was recorded. Although strident criticism of the way Greece has been treated is typical for Varoufakis, a Marxist economist, the remarks caused a stir in Germany where voters and politicians are increasingly reluctant to lend Greece money. Bild daily splashed the comments on the front page and ran an editorial comment urging European leaders to stop providing Greece with ever more financial support. “The Greek government is behaving as if everyone must dance to its tune. But there must be an end to this madness. Europe must not be made to look stupid,” wrote a commentator.

Syriza is not taking the attempts at humiliations lying down.

• Tsipras Says Will Pursue German War Reparations (Kathimerini)

Prime Minister Alexis Tsipras Tuesday expressed his government’s firm intention to seek war reparations from Germany, noting that Athens would show sensitivity that it hoped to see reciprocated from Berlin. In a speech in Parliament, launching a debate on the creation of a committee to seek war reparations, the repayment of a forced loan and the return of antiquities, Tsipras told MPs that the matter of war reparations was “very technical and sensitive” but one he has a duty to pursue. He also seemed to indirectly connect the matter to talks between Greece and its international creditors on the country’s loan program. “The Greek government will strive to honor its commitments to the full,” he said.

“But it will also strive to ensure all unfulfilled obligations toward Greece and the Greek people are fulfilled,” he added. “You cannot pick and choose on ethical issues.” Tsipras noted that Germany got support “despite the crimes of the Third Reich” chiefly thanks to the London Debt Agreement of 1953. Since reunification, German governments have used “silence, legal tricks and delays” to avoid solving the problem, he said. “We are not giving morality lessons but we will not accept morality lessons either,” Tsipras said. In comments to Parliament later PASOK leader Evangelos Venizelos said it was important not to link the issue of reparations with Greece’s talks with creditors.

Given the above, what’s that deal worth?

• Greece Got a ‘Deal’ in February, But Things Still Haven’t Calmed Down (Bloomberg)

On February 20th, the Eurogroup came to an agreement with Greece on a way forward that would allow Greece access to further bailout funding. The agreement covered the way forward for Greece and consisted of three main elements.
• Greece would come up with a set of budgetary measures that would allow a successful review by the institutions.
• Greece would then implement these measures.
• The institutions would disburse funding to Greece as successful implementation progressed.

With this deal in place, it briefly seemed like things would quiet down for Greece, for a few months at least. Unfortunately, a sticking point has already emerged, which was highlighted at yesterday’s Eurogroup meeting. That sticking point is due to the very slow progress on meeting any of the elements of the February deal. The institutions are now going to take a larger role in formulating the measures Greece must undertake. The first meeting between Greece and the institutions is due to take place in Brussels tomorrow. If these meetings can produce measures that are acceptable to both sides, that will be a first step. But for Greece to access further funding it will have to also take the second step and start to implement those agreed measures. With time running out, there should be willingness on both sides to expedite this quickly. Recent events have shown, however, that each step forward in the process only happens at the last possible moment.

Let’s all get sunk in a bottomless pit.

• Eurozone Central Bank Buying Crushes Yield Curves (Bloomberg)

Euro-area government bonds with longer maturities surged as the region’s central banks bought sovereign debt for a second day, pushing yields closer to those on shorter-dated notes. That’s flattening so-called the yield curves of debt from Germany to Italy. Euro-system central banks were said to have purchased securities, including German five-year notes with a negative yield, under the ECB’s expanded quantitative-easing plan, according to three people with knowledge of the transactions. Belgian and Italian securities were also acquired, one of the people said. As the ECB and national members embark on purchases of sovereign debt designed to boost price growth in the region, rates on short-term securities are below zero in seven euro-area nations, meaning a buyer now would get less back than they paid if they held them to maturity.

That’s boosting demand for longer-dated bonds, particularly as the ECB’s rules preclude purchases of debt yielding below its deposit rate of minus 0.2%. German 30-year yields dropped the most in more than two months and touched an all-time low. “Nobody wants to fight the flow,” said Felix Herrmann, an analyst at DZ Bank in Frankfurt. “We have many investors who are desperately looking for yield. They are simply scaling into those bonds that yield some interesting pick up.” The yield premium investors demand to hold Germany’s 30-year bunds instead of two-year notes shrank to 100 basis points, or 1%age point, at 3:59 p.m. London time, the least since October 2008. The spread is down from 234 basis points a year ago. A yield curve is a chart of rates on bonds of varying maturities.

The Bundesbank may struggle to meet its buying quotas given the amount of German debt yielding less than the ECB deposit rate, SocGen analysts wrote in a client note. Germany’s seven-year yield dropped below zero for the first time since Feb. 27. “Without good purchases in the short-dated bonds, where outstandings are big, it is difficult to see how the Bundesbank is going to get its share of the program done,” the analysts wrote. Germany’s three-year note yields reached minus 0.24% Tuesday, while the four-year rate touched minus 0.197%, less than one basis point from the ECB’s deposit rate.

Longer-dated bonds are also being favored after policy makers last week failed to agree on how to share losses from buying bonds with negative yields. 78 of the 346 securities in the Bloomberg Eurozone Sovereign Bond Index already have rates below zero. “For me, as a fund manager, it doesn’t make sense to hold any bonds with a negative yield, so I’m happy to sell,” Christoph Kind, head of asset allocation at Frankfurt Trust, which manages about $20 billion, said Monday. “We are selling to the brokers, not directly to the ECB, but maybe in the end this will be bought by the ECB.”

Because that’s the only way to keep the housing industry alive.

• Why Does America Continue To Subsidize Housing For The Wealthy? (Guardian)

Many people in the US have given up on the American dream of owning a house: US homeownership rates have now dropped to the lowest point in almost 20 years. But the government shouldn’t be focusing on trying to raise that rate – for now, their priorities should lie with increasing affordable housing. For too long, well-off, high-income homeowners have benefited from generous government support. All the while, ordinary Americans are struggling to pay the rising rent. It is time to stop prioritizing home sales – increasingly out of reach for many Americans – and help everyday people attain a much more basic, and pressing need: affordable housing. Since the Great Depression, US housing policies have aimed almost exclusively at encouraging Americans to become homeowners.

Housing policies favor and heavily subsidize homeownership because it is said to help create strong communities and build family wealth. But it would be a mistake to continue with this approach now. Homeowners receive tax benefits for their housing expenses, mostly because of the enormously expensive mortgage interest deductions, which disproportionately benefits higher-income taxpayers. But no such support is offered to lower-income renters. The government should consider introducing housing tax credits or other tax benefits that would help those who are struggling to pay the rent. The federal government should also consider providing tax subsidies for land trusts or shared equity plans that help renters become homeowners but share the home’s appreciation with a third-party.

The old have policies have failed; we need to try a new approach. Though housing policies succeeded in encouraging renters to buy homes until the 1990s, homeownership has now become unaffordable for lower- and middle-income Americans largely because they do not have savings, and they have unstable and stagnated income – which has changed little (adjusted for inflation) since 1995. Because housing sales have been sluggish since the 2007-2009 recession, the US government has repeatedly tried to get people to buy houses, and keep existing homeowners in their houses. Yet programs like Hope for Homeowners program, the Home Affordable Modification Program and the Home Affordable Refinance Program all failed to achieve their goals of preventing owners from losing their homes, largely because of design flaws.

The homeownership problem is particularly acute in young adults, who entered the labor market at the time of the recession. Overall unemployment rates in 2007 were only 4.6%, but then soared to 9.3% by 2009. The jobs that have been created since the recession ended have mostly come from the low-wage retail, service and food/beverage sectors, making it harder even for young adults who have jobs to save money for a down payment – or even to pay rent. Student debt, which has skyrocketed, isn’t helping: average student loan balances increased by 91% from 2003 to 2012.

Sounds sort of smart, but most debt is with the shadow banks, and that remains open.

• China’s Solution to $3 Trillion Debt Is to Deal with It Later (Bloomberg)

China’s government has a creative solution to address repayment concerns hanging over more than $3 trillion in regional debt. It will deal with it later. The Finance Ministry issued a 1 trillion yuan ($160 billion) quota for local governments to convert maturing high-cost debt into lower-yielding municipal notes to be repaid at a future date on March 8. Questions left unanswered include whether investors will be forced into the swap, how much transparency there will be over assets involved and whether the liabilities will strain the nation’s finances. China’s bond risk rose the most in a month on March 9 even as debt-rating companies welcomed the government’s plan to address regional debt, which Mizuho estimates may have reached 25 trillion yuan, bigger than Germany’s economy.

The ministry’s 500 billion yuan municipal bond trial and the auction of 100 billion yuan of special bonds is insufficient to meet local-government financing vehicle debt due this year while funding budgets, Moody’s Investors Service said. “It will buy time for the government to solve the local debt problem, as the transition period takes three to five years,” said Ivan Chung, a senior vice president at Moody’s in Hong Kong. “The 1 trillion yuan debt-swap plan will be able to cover the refinancing needs of the maturing bonds this year, as municipal bond issuance is not enough.” The government is seeking to rein in local-government borrowing while accelerating infrastructure spending to defend a 7% economic growth target. Regional authorities set up thousands of funding units to finance projects from sewage systems to subways after a 1994 budget law barred them from issuing notes directly. Their fundraising helped liabilities jump 67% from the end of 2010 to 17.9 trillion yuan as of June 2013.

“That doesn’t jump out at me as a significant enough change.”

• Yellen Meets Senate Bank Chief With Fed Transparency in Focus (Bloomberg)

Federal Reserve Chair Janet Yellen reached out on Tuesday to Republicans who want to shake up the central bank, meeting with the powerful head of the Senate Banking Committee who has called for more accountability from the Fed. Yellen declined to comment after her 25 minute-long meeting with Alabama Republican Richard Shelby at his offices in Washington. Shelby earlier told reporters that “what we are doing is trying to figure out exactly what we need to do legislatively to make the Fed more accountable to the people and to do a better job as a regulator.” Lawmakers from both parties have voiced concerns about the central bank and are narrowing their focus to the New York Fed, which is the target of proposals to either make its president subject to Senate confirmation or dilute its policy powers.

Republicans have complained about the Fed’s aggressive monetary policies and what they consider regulatory overreach. Democrats have accused the Fed of failing to police the largest banks to prevent the kind of excessive risk-taking that contributed to the financial crisis of 2008. Shelby previously said he’s looking “very strongly” at a proposal from Dallas Fed President Richard Fisher, who is retiring next week, that would strip the New York Fed of its permanent vote on the policy-making Federal Open Market Committee.

Fisher’s staff has already responded to questions about his proposal from Shelby’s aides. Sherrod Brown, the senior Democrat on the Senate banking panel, said on Tuesday he favors a plan to make the president of the New York Fed a presidential appointment requiring Senate approval, like members of the Fed’s Washington-based Board of Governors. “The way we have the Fed structure, banks have so much influence over their regulator,” Brown, from Ohio, told reporters. “I don’t know if it should go any further than the New York Fed but it makes a lot of sense that the New York Fed be selected by the president and be confirmed.” While saying he would like to look more closely at the Fisher proposal, Brown said, “That doesn’t jump out at me as a significant enough change.”

You can call it the Silly Empire, but that seems to ignore that chaos is the goal, rather than the means.

• Chaos: Practice and Applications (Dmitry Orlov)

The term “chaos” has been popping up a lot lately in the increasingly collapse-prone world in which we find ourselves. Pepe Escobar has even published a book on it. Titled Empire of Chaos, it describes a scenario “where a[n American] plutocracy progressively projects its own internal disintegration upon the whole world.” Escobar’s chaos is tailor-made; its purpose is “to prevent an economic integration of Eurasia that would leave the U.S. a non-hegemon, or worse still, an outsider.” Escobar is not the only one thinking along these lines; here is Vladimir Putin speaking at the Valdai Conference in 2014:

A unilateral diktat and imposing one’s own models produces the opposite result. Instead of settling conflicts it leads to their escalation, instead of sovereign and stable states we see the growing spread of chaos, and instead of democracy there is support for a very dubious public ranging from open neo-fascists to Islamic radicals.

Why do they support such people? They do this because they decide to use them as instruments along the way in achieving their goals but then burn their fingers and recoil. I never cease to be amazed by the way that our partners just keep stepping on the same rake, as we say here in Russia, that is to say, make the same mistake over and over.

Indeed, Escobar’s chaos doesn’t seem to be working too well. Eurasian integration is very much on track, with China and Russia now acting as an economic, military and political unit, and with other Eurasian states eager to play a role. The European Union is, for the moment, being excluded from Eurasia because it is effectively under American occupation, but this state of affairs is unlikely to last due to budgetary problems. (To be precise, we have to say that it is under NATO occupation, but if we dig just a little, we find that NATO is really just the US military with a European façade hammered onto it Potemkin village-style.)

And so the term “empire” seems rather misplaced. Empires are ambitious undertakings that seek to exert control over their domain, and what sort of an empire is it if its main activity is stepping on the same rake over and over again? A silly one? Then why not just call it “The Silly Empire”? Indeed, there are lots of fun silly imperial activities to choose from. For example: arm and train moderate opposition to a regime you want to overthrow; find out that it isn’t moderate at all; try to bomb them into submission and fail at that too.

Russia won’t stand for it.

• ‘We’ll Buy Reverse Gas Supplies At $245’- Ukraine’s President (RT)

Ukraine will pay $245 per thousand cubic meters for the gas it will get through reverse flow from Europe as the country diversifies its natural gas suppliers away from Russia, President Petro Poroshenko has said. Ukraine has significantly reduced its energy dependence on Russia, and will buy Russian gas through reverse flows from Europe at $245 per 1,000 cubic meters, Ukrainian President Petro Poroshenko said in a TV interview Monday. “We have lived through the winter; we bought only 2 billion cubic meters of gas with the last purchase at a price of less than $300 per 1,000 cubic meter. As a result, it all came down to the Russian Federation having had to apply for a pumping volume increase of 68%, which crashed the gas market. And today we will buy gas for $245 under reverse deliveries,” Poroshenko said.

Ukraine has increased the amount of gas collecting in its underground storage facilities to 23 million cubic meters per day compared with 8 million cubic meters in February, according to the data provided by the GSE association on Tuesday. Currently the country is accepting 10 million cubic meters of Russian gas daily at a price of $329 per 1,000 cubic meters. Ukraine claims it pays 15% more for Russian gas than Europe. Ukraine currently receives reverse deliveries of natural gas from Slovakia, Hungary and Poland. Gas supplies from Hungary have been reduced by Ukraine and stand at 715,000 cubic meters a day from March 7, which is almost 5 times lower than in February, according to reports from the TASS news agency. Capacity from Slovakia remains at 37.7 million cubic meters a day. Poland can deliver up to 717, 000 cubic meters a day compared with 840,000 cubic meters in February. Last week Ukraine imported 330 million of cubic meters of natural gas from Europe, and 81 million cubic meters from Russia.

Send her home and keep her there.

• US Applies Pressure to States Opposing Anti-Russian Sanctions: Nuland (Sputnik)

The United States government is applying pressure to European countries that oppose sanctions against Russia, US Assistant Secretary of State for European Affairs Victoria Nuland said at a US Senate hearing on Tuesday. “We continue to talk to them bilaterally about these issues,” Nuland said of Hungary, Greece, and Cyprus, whose leaders have opposed anti-Russian sanctions. “I will make another trip out to some of those countries in the coming days and weeks.” Nuland noted that “despite some publically stated concerns, those countries have supported sanctions” in the European Union Council. Additionally, discussions between the United States and Europe have continued, Nuland said in her opening statements to the US Senate Foreign Affairs Committee.

“We have already begun consultations with our European partners on further sanctions pressure should Russia continue fueling the fire in the east or other parts of Ukraine, fail to implement Minsk or grab more land,” she said. The United States, the European Union and their allies blame Russia for fueling the internal conflict in Ukraine and have imposed a series of sanctions against Russia targeting its defense, banking, and energy sectors. Russia has repeatedly denied the allegations and responded with targeted export bans. Some European nations including Greece, Hungary and Cyprus, have opposed further sanctions, and Spain has recently stated its opposition as well.

Obviously.

• It’s NATO That’s Empire-Building, Not Putin (Peter Hitchens)

Just for once, let us try this argument with an open mind, employing arithmetic and geography and going easy on the adjectives. Two great land powers face each other. One of these powers, Russia, has given up control over 700,000 square miles of valuable territory. The other, the European Union, has gained control over 400,000 of those square miles. Which of these powers is expanding? There remain 300,000 neutral square miles between the two, mostly in Ukraine. From Moscow’s point of view, this is already a grievous, irretrievable loss. As Zbigniew Brzezinski, one of the canniest of the old Cold Warriors, wrote back in 1997, ‘Ukraine… is a geopolitical pivot because its very existence as an independent country helps to transform Russia. Without Ukraine, Russia ceases to be a Eurasian empire.’

This diminished Russia feels the spread of the EU and its armed wing, Nato, like a blow on an unhealed bruise. In February 2007, for instance, Vladimir Putin asked sulkily, ‘Against whom is this expansion intended?’ I have never heard a clear answer to that question. The USSR, which Nato was founded to fight, expired in August 1991. So what is Nato’s purpose now? Why does it even still exist? There is no obvious need for an adversarial system in post-Soviet Europe. Even if Russia wanted to reconquer its lost empire, as some believe (a belief for which there is no serious evidence), it is too weak and too poor to do this. So why not invite Russia to join the great western alliances?

Alas, it is obvious to everyone, but never stated, that Russia cannot ever join either Nato or the EU, for if it did so it would unbalance them both by its sheer size. There are many possible ways of dealing with this. One would be an adult recognition of the limits of human power, combined with an understanding of Russia’s repeated experience of invasions and its lack of defensible borders.