National Photo Co. Janes’ candy store, Ninth Street, Washington, D.C. 1924
Boxing champ Vitali Klitschko, who was reportedly the most popular opposition leader in Ukraine during the Maidan protests before Yanukovych was chased away, and was then shunned by the west as interim PM in favor of banker-boy Yatsenyuk, this morning announced he’s no longer a candidate in the presidential elections in May. Instead, he’ll throw his heavyweight behind Ukraine’s own Willy Wonka, candy man Petro Poroshenko, known locally as the ‘chocolate king’. Poroshenko, who officially announced his candidacy yesterday, made billions in the confectionery business.
It would appear the only competitor for the presidency that remains is Yulia Tymoshenko, who became a billionaire herself through an opaque monopoly in – Russian – gas deliveries. Isn’t it lovely, a country that will soon be driven to its knees through austerity is certain to be governed by billionaires.
Poroshenko has been moving through a political revolving door, coming and going in and out of parliament and successive governments, since 1998. He’s currently an independent member of parliament, which gives him a Teflon-like quality that may come in handy if ever anyone investigates recent Ukraine politics. No confirmation yet on Victoria Nuland’s approval, but that’s undoubtedly long been arranged.
Not that everything will go down smoothly between now and the May 25 election. The Ukraine parliament is seeking to ban the Right Sector, though its support was important in executing the “coup”, and there’s not that much wiggle room between that group and the Svoboda one that is actually part of the interim government. Both lean towards what we would label far right, and have at some time used symbols that we would label highly undesirable.
Will the Right Sector simply evaporate just because parliament wants to ban it? Who’s going to make it? Who has a real grip on power in Ukraine over the next two months? The army looks to be in a bit of a shambles, with large numbers having “defected” to Russia, there doesn’t seem to be a very effective police force, and there are all sorts of militia ‘roaming’ the country on both sides of the pro/contra Russia divide. Who’s going to stop the well armed militia, rapidly filling up with – economically and ideologically – desperate young men, from instigating mayhem if they don’t get what they want?
At least Putin still has his troops at the border.
• Klitschko Decides Against Running For Ukraine President (AFP)
Ukraine’s boxer turned opposition leader Vitali Klitschko has decided against contesting snap presidential elections in May and would instead back the candidacy of businessman Petro Poroshenko. Klitschko told a congress of his UDAR (Punch) party, “We have to nominate a single candidate representing the democratic forces . This has to be a candidate who enjoys the strongest public support. Today, this candidate in my opinion is Petro Poroshenko”.
Vitali Klitschko was in Dublin this month for the European People’s Party annual congress. He was quoted as saying that “the recent overthrow of the government was a decisive moment in European history”. He also told reporters he was grateful for the support from the Irish people. He said, “The main message right now, we have to be active…The unity of Ukraine, the independence of Ukraine is very important right now.”
• Total And Lukoil In Talks To Jointly Develop Russian Shale (RT)
France’s Total is reportedly in talks with Russia’s Lukoil to develop a shale formation in the Russian Urals – estimated to be the biggest in the world. It’s evidence western businesses want to work with Russia, casting off political talk of sanctions. Russia’s largest private company Lukoil is discussing a joint venture with Total over so-called “difficult oil” in its giant but still unproven Bazhenov formation, the Financial Times (FT) cites sources familiar with the matter. The deposit holds a huge portion of Russian shale gas and oil, and is the biggest in the world according to the US Department of Energy.
Recent threats by western politicians to impose sanctions against Russia haven’t affected the plans of the two companies to cooperate, as Total and Lukoil were discussing a tie-up before Crimea became a part of Russia. Another of Russia’s big business allies – Siemens – said earlier this week that its investment in the country, including cooperation with Russian Railways and Gazprom, will go on as scheduled. Until now Lukoil has always chosen to develop its assets in Russia alone, which means sealing the deal with Total would mean a shift in its strategy.
“Lukoil is the only large Russian oil company without a major western partner,” as the FT quotes Karen Kostanian, oil and gas analyst at Bank of America Merrill Lynch in Moscow. Total is now represented in Russia through a 16% stake in Novatek, the country’s second biggest gas producer after Gazprom. Now the investment is under scrutiny, as Novatek CEO Gennady Timchenko was included on the US sanctions list. Timchenko owns 23% of Novatek.
• China Takes No Sides On Ukraine Crisis, Xi Tells Europe (Reuters)
President Xi Jinping said on Friday China would not take sides with the West or Russia over Ukraine, disappointing any hopes Beijing might add its weight to international pressure on Moscow for annexing Crimea. “China does not have any private interests in the Ukraine question,” Xi told a news conference with German Chancellor Angela Merkel. “All parties involved should work for a political and diplomatic solution to the conflict.”
China has adopted a cautious response to the Ukraine crisis, not wanting to alienate its ally Russia or make comment directly on a referendum in which Crimea voted to join Russia, lest it set a precedent for restive regions of its own such as Tibet. In an U.N. Security Council vote earlier this month on a draft resolution to condemn the Moscow-backed referendum in Crimea, China’s abstention effectively isolated Russia. [..] China has signaled understanding for Russia’s position, saying what is happening “has historical reasons”. Chinese state media has also expressed sympathy for Moscow.
But China has also said it wants to develop “friendly cooperation” with Ukraine. Its foreign ministry said this week Beijing would play a “constructive role” on international financial aid for Ukraine, though it stopped short of saying whether Beijing would participate directly. “We support the constructive efforts the international community has made to de-escalate the situation and are open to any concepts which serve to calm the situation and to bring about a political solution,” Xi said in Berlin. “The Chinese side always respects the principles of international relations and non-intervention in the internal business of other states,” he said.
• Ex-German Chancellor Warns Of Overreaction To Ukraine (MarketWatch)
Former German Chancellor Helmut Schmidt has become the latest German politician to express understanding for Moscow’s position on Ukraine as he warned that overreaction by the West could spur Russian President Vladimir Putin to further aggression. The 95-year-old Social Democrat sharply criticized the sanctions imposed against Russian individuals as “nonsense” and cautioned that serious economic sanctions could hurt the West, especially Germany, as much as Russia. He said it was a mistake to exclude Russia from the Group of Eight leading nations just when it was important to maintain a dialogue, but felt the G-20 would be a better forum for resolving the issue in any case.
Schmidt’s remarks in the weekly Die Zeit come as a new poll out this week shows a majority of Germans accept Russia’s annexation of Crimea as a fait accompli and believe Moscow views Ukraine as part of its zone of influence. While a majority polled believe the West’s response has been appropriate, fully a third consider even the weak sanctions imposed so far as excessive.
Schmidt’s critique comes after another former Social Democratic chancellor, Gerhard Schroeder, also expressed understanding for Putin’s actions and criticized the European Union for forcing the issue in Ukraine by insisting on an either-or choice between the EU and Russia. However, Schroeder is considered particularly close to the Russian leadership and was criticized for his links to Gazprom after he left office, so Schmidt’s remarks are likely to carry more weight. The Left party in Germany, which has also criticized the Western response to Ukraine and accused the new government in Kiev of being fascist and antisemitic, quickly seized on Schmidt’s remarks as echoing their own.
German ambivalence regarding Russia and Ukraine has to be an important part of any calculation about a U.S. response, since the EU’s biggest country will steer the entire bloc in the direction it wants to go. Schmidt said Putin’s action in Crimea was “fully understandable.” Yes, it violated international law and territorial integrity, but so did Western action in Libya. Schroeder has compared it to the war in Kosovo during his chancellorship, which he says was also technically a violation of the U.N. charter.
The agitated reaction of the West is dangerous, Schmidt said, because it will lead to a corresponding agitation of Russian public opinion. As to whether Russia might now invade other areas of eastern Ukraine, Schmidt said: “I think it is conceivable, but I think it is a mistake for the West to act as if it was inevitably the next step. That could possibly result in fueling the appetite on the Russian side.”
Schmidt had praise for the “caution” shown in the crisis by the current chancellor, Angela Merkel. He criticized those in the U.S. like Sen. John McCain who are calling for more forceful intervention, reminding his German audience that “at the end of the 21st century, Russia will still be a big neighbor.” The former chancellor noted that while Ukraine is certainly an independent state, historians still debate whether Ukraine is actually a distinct nation. Schroeder, at an event sponsored earlier this month by Die Zeit, suggested the West should allow some time to pass before engaging in negotiations with Putin. It might only be possible after elections in Ukraine for a government “that represents all the people.”
Germany is particularly sensitive to the fact that the current government in Kiev includes members of the Svoboda Party, which in the past has used Nazi symbols and maintained contact to the neo-Nazi National Democratic Party (NPD) in Germany. Schmidt reminded his readers that in World War II, Russia was on the side of the West and it was Germany that was the enemy. “It is very important to remember that despite the Second World War, the Russians have put aside hatred of Germans,” Schmidt said. “There is no hatred, no rejection of Germans by the Russian people.”
• Why We’ve Got It So Wrong On Inequality (Independent)
When politicians talk about the gap between the rich and the poor they tend to argue about incomes. One of the battlegrounds of the current Parliament has been the 50p rate of income tax on high earners, which George Osborne contentiously cut to 45p. The Gini co-efficient, a statistical gauge of the gap between incomes at the top and the bottom, is a fixture of the political debate. But Westminster seems less clued up when it comes to wealth inequality. The reaction to the dramatic pension liberalisation in George Osborne’s latest Budget demonstrated that.
The lifting of the requirement on retirees to use most of their accumulated private pots to buy annuities did ignite a debate. But critics’ misgivings have related to the supposed danger of retirees blowing all their nest egg too soon, or ploughing the proceeds into property. The assumption is that the liberalisation, regardless of whether it is a good thing or not, will have a profound impact across the board. Yet a glance at the distribution of private pension wealth in the first chart from the Office for National Statistics, which breaks down pension wealth by decile of population, shows the major beneficiaries of the Chancellor’s liberalisation will be the very rich.
Between 2008 and 10 the wealthiest tenth of the population had private pension assets of £2.4 trillion. That’s almost three times as much as the next richest decile. Indeed, it’s more than the combined wealth of the bottom 90% of the population combined. The pensions minister, Steve Webb, said last week he was relaxed about the prospect of people squandering their pots on Lamborghinis if they so wished. But the statistics show that it is only the most comfortable tenth of our society who will have the opportunity to splash out hundreds of thousands of pounds in this fashion. The average lump sum annuitised each year is £17,000, according to the Financial Conduct Authority regulator – barely enough for a Lamborghini’s spare wheel. This is a pension liberalisation that matters mainly to the super wealthy.
The distribution of pension wealth, by the way, reflects the bigger picture on asset ownership. The richest tenth of households own 44% of the nation’s overall wealth. Incomes are redistributed by our progressive tax system. This is the reason post-tax income inequality has remained under control over the past two decades, despite exploding pay at the top end for chief executives and financial sector workers. But the mechanisms for wealth redistribution are much weaker.
There is a strong case for a structural tax switch from income to wealth. The growing cost of health and social care, as the population ages, will place strains on state finances across the developed world over this century. Increasing taxation on growing wealth stocks to fill the hole would be preferable to ratcheting up the burden on a relatively declining number of wage earners.
Yet some politicians are moving in the opposite direction. David Cameron has reactivated the Tory pledge to reduce taxes on inheritance. He has also resisted attempts to increase property wealth. Inheritance and property taxes are unpopular, yet they are a nuisance for the very affluent. An annual levy on £2m mansions (Lib Dem policy) would fall on just 55,000 homes. Put that in the context of a housing stock of 28 million homes. Only 26,000 people paid inheritance tax in the last financial year. Estates worth less than £650,000 are effectively exempt.
While politicians and vested interests resist tax reform, the forces driving inequality are intensifying. The French economist Thomas Piketty argues that returns to capital are now starting to outstrip GDP growth in advanced economies, just as they did in the nineteenth century. That suggests the income from investments will rise faster than wages. The second chart shows wealth disparities are already rising in the US and Europe. But if Piketty is correct, this gap will grow further, heading up to levels last seen before the First World War.
Adair Turner, the ex-head of the Financial Services Authority, sounded his own warning this week, pointing out that a growing share of new wealth flows from the development of internet technologies. The winner-takes-all structure of our modern economies and the growing importance of online firms, he argues, is exacerbating wealth inequalities. The economic and political debate about what to do about the wealth gap has barely begun. Will new wealth taxes discourage entrepreneurial effort, making us all poorer? Should immovable property take most of the burden? These questions are moot. But make no mistake: the time to start talking seriously about wealth and taxes has arrived.
• Madrid Rocked By New Wave Of Student Protests (RT)
Thousands of university and high school students flooded central Madrid in a second day of strikes Thursday organized to protest massive cuts in education funding imposed by PM Mariano Rajoy’s People’s Party government. The protests were called by the Students’ Union, which urged students to rally against cuts in spending on schools and universities and increases in education fees. The students also demanded the resignation of Education, Culture and Sports Minister Jose Ignacio Wert, who introduced the reforms.
The demonstrators started burning bins early Thursday morning at Madrid’s Complutense University, which ranks as the top educational establishment in Spain. One person was arrested “for possession of flammable material,” AFP reported a police spokeswoman as saying. In the afternoon, hundreds of protesters gathered in the center of the Spanish capital, shouting slogans such as: “No to education cuts!” “We don’t want to pay your debt with health and education,” the protesters shouted, addressing the education minister, AFP reported.
“It makes me sad because they are not giving everyone the opportunity to study,” one demonstrator, 18-year-old high school student Karim Martinez, was reported as saying. “They are raising fees and cutting scholarships. A lot of parents do not have the money to pay for university.” According to the protesters, the impact of the measures on school funding and resources has become unbearable. “The situation now is so unsustainable that there is nothing left for us to do but fight,” said Marta Valenzuela, a 20-year-old criminology student. “It’s my family that has to pay, and we’re having to make big sacrifices,” she said, AFP reported.
Meanwhile, at least 54 people detained after similar protests Wednesday were released on bail Thursday, the police spokeswoman said. They were arrested after they put up barricades and started burning containers to block access to the campus at Complutense University. Madrid has been hit by a wave of rallies starting March 22, when thousands of Spaniards from all over the country gathered in the center of the capital protesting against poverty and EU-imposed austerity which later turned into violent clashes with police.
• Poor Take The Fall In Deepening Europe Crisis (RT)
Europe’s poor and children are bearing the brunt of harsh austerity measures as the eurozone crisis continues to deepen, a report compiled by the Catholic charity Caritas warns. “We in Brussels keep hearing that the economic crisis is over,” Thorfinnur Omarsson, a spokesman for Caritas Europa, said in Athens, where the Catholic charity released its report Thursday. “These findings not only doubt that the crisis is over but show it is the poor who are paying for a crisis they did not cause.”
The report, which studied the impact of the ongoing financial crisis specifically on Cyprus, Greece, Ireland, Italy, Portugal, Romania and Spain, painted a picture of an “unfair Europe” burdened by “disturbing” levels of poverty. “Five years since the beginning of the crisis in 2008, there is little or no growth, there are ongoing massive increases in unemployment and millions of people are living in poverty,” the 114-page report said. In an increasingly stratified Europe, individuals and families alike are increasingly under stress as social risks are increasing while funding of social systems is being slashed.
The report notes how cuts to public services are “disproportionately” affecting lower income groups, while an inability to get access to healthcare is having an equally negative affect on people’s health. Child poverty has jumped from an average of 20% to 22% over the last three years, reaching over 30% in Ireland, Caritas general secretary Jorge Nuno Mayer said.
The report argues that governmental failings and high levels of public debt have taken the lion’s share of attention, rather than the failings of the financial markets themselves. This has led to ineffectual attempts to save Europe through increasingly deeper budgetary cuts. “Austerity measures have failed to solve problems and create growth,” Mayer said, adding that “the European project and cohesion in our societies is at stake.”
The report notes that in Greece, the epicenter of Europe’s 2009 debt crisis, attempts to salvage the economy through austerity have failed to deliver a cure for the country’s economic woes. “On the contrary, the medicine that sought to cure the disease is killing the patient,” the report said. The document notes how the crisis is destabilizing the already volatile political landscape, “with despair leading to support for extreme right-wing parties, who are nostalgic about fascist ideologies, a crisis that also has the potential to undermine all the institutions that Europe has worked hard to establish.”
• Stock Market Rigged, Says Michael Lewis In New Book (CBS)
The U.S. stock market is rigged in favor of high-frequency traders, stock exchanges and large Wall Street banks who have found a way to use computer-based speed trading to gain a decisive edge over everyone else, from the smallest retail investors to the biggest hedge funds, says Michael Lewis in a new blockbuster book, “Flash Boys.” The insiders’ methods are legal but cost the rest of the market’s players tens of billions of dollars a year, according to Lewis, who speaks to Steve Kroft in his first interview about the book. Kroft’s report will be broadcast on 60 Minutes, Sunday, March 30 at 7 p.m. ET/PT.
High-frequency traders have found ways to use their speed to gain an advantage that few understand, says Lewis. “They’re able to identify your desire to buy shares in Microsoft and buy them in front of you and sell them back to you at a higher price,” says Lewis. “The speed advantage that the faster traders have is milliseconds…fractions of milliseconds.”
Lewis says a former trader at the Royal Bank of Canada in New York, Brad Katsuyama, figured this out after he consistently failed to have his entire order filled at the price he wanted. Katsuyama, who speaks to Kroft, put together a team of experts to figure out how to defeat the problem and started a new exchange, IEX, that he believes will level the playing field. Katsuyama launched IEX in October and investors, large and small, can route their trades through IEX without fear of predators lurking. IEX has accomplished this by creating a unique speed bump. “They slowed down high-frequency traders’ ability to trade on their market,” says Lewis.
While many on Wall Street are trying to starve IEX because it has upset the status quo, large institutional investors are onboard. Hedge fund manager David Einhorn of Greenlight Capital, has invested in the new exchange and tells Kroft that he believes IEX is “going to succeed in a very big way.”
• US Student Loan Debt Tops $1 Trillion (RT)
The student loan industry is booming, saddling over 37 million college students and graduates with $1.08 trillion in loans in 2013, even as President Barack Obama and lawmakers work to rein in the crippling debt young people face in the US. The average cost of a Bachelor’s degree at a private college or university is $45,000, according to The College Board’s Trends in Higher Education. Students attending public schools in their home state pay just under $23,000 on average, while those paying out-of-state tuition can expect to pay more than $36,000 a year. In 2012, The College Board says the average student carried over $6,000 student loans for the academic year.
Of the nearly 20 million Americans who attend college each year, about 12 million borrow, according to the Almanac of Higher Education. Estimates show that the average four-year graduate accumulates $26,000 to $29,000 in loans, and some leave college with debt totaling in the six figures. Those students who continue on to graduate school, especially law and medical school, see their debt balloon.
All that debt hits as soon as students graduate, whether they have a job or not. And millennials – those born after 1982 – were the hardest hit group in the Great Recession, as professionals with experience took entry-level jobs just to get by and millennials sometimes took unpaid internships after graduation, in the hopes that the experience would translate into a job. In 2012, the unemployment rate for college graduates under the age of 24 was 9.4%, while the overall unemployment rate hovered around 8%, according to the Bureau of Labor and Statistics. Those who didn’t get a job or an unpaid internship turned to graduate school, adding to their overall debt.
Now college graduates are realizing they may have mortgaged their future to pay for their educations as interest piles on to the initial loan. A brief based on the Federal Reserve Board’s Survey of Consumer Finances and other sources, shows that, over a lifetime of employment and saving, $53,000 in education debt leads to a wealth loss of nearly $208,000. Nida Degesys, who graduated in 2013 from Northeast Ohio Medical University with about $180,000 in loans, told the Associated Press, “There were times where this would make me stay up at night.” With interest, Degesys now owes a total of $220,000. “The principal alone is a problem, but the interest is staggering.”
But these same graduates also have a much higher earning potential than those who don’t receive a Bachelor’s degree. According to the Pew Research Center, millennials aged 25-32 with a four-year degree earn an average of $45,500 a year, compared with $30,000 for those with an associate’s degree or some college and $28,000 for someone with only a high school education. They also have a lower unemployment rate: 3.8% versus 8.1% or 12.2%, respectively.
That higher earning potential doesn’t help them down the line, though. Gregory Zbylut pays $1,300 a month towards his $160,000 in law school loans. He graduated from Loyola University in Chicago in 2005. He estimates he could have saved $150,000 to $200,000 if that monthly payment had gone into a 401(k) retirement account instead. He’s been turned down twice for a mortgage, he told AP, and he’s been unable to marry his fiancé between his debts and her son. “I have more education and more degrees than my father, as does she than her parents, and yet our parents are better off than we are. What’s wrong with this picture?” he said.
• Money From The Gods: Iceland’s Auroracoin (RT)
Norse money-god Niord was famed for being able to give riches to anybody he wanted. In modern Iceland newly-minted money is falling from the digital heavens. Once upon a time during the financial crisis, there was talk of distributing Quantitative Easing as ‘helicopter money’. A scattergun drop of cash would result in delighted citizens catching falling notes. The economy would recover as citizens rushed to spend their windfall.
Banks suggested that people couldn’t be trusted to actually spend the money, demanding they become the monopoly channel of money. Their corporate socialist government blood brothers readily complied. Crazed QE has expanded governments’ debt piles and enabled banks to lavish vast bonuses on traders who profited from free money while the real economy, at best, festered.
However this week a genuine helicopter money experiment has finally trusted the people. Led by the pseudonymous ‘Baldur Friggjar Odinsson’, bitcoin’s Nordic cousin auroracoin is raining digitally from the Icelandic sky. Similar to Bitcoin with a total circulation of 21 million coins, Auroracoin has two key differences. Half the coins were pre-mined (i.e. produced in private without the public being permitted to join the mining process) while Auroracoin distribution is initially restricted to Icelandic citizens. When the pre-mining phase was completed, every Icelandic citizen became eligible to join ‘the airdrop’ and claim an equal share of auroracoins, worth around $360 per person.
Now auroracoin can be mined by anybody – although one might argue Iceland is ideally placed to keep mining most efficiently via its highly efficient data centers powered by geothermal energy. A fascinating experiment has been unleashed – a ‘national’ crypto currency on an island beset by significant economic problems. When Iceland’s bubble burst in 2008, the country’s enlarged banking sector fell apart and the government uniquely (sensibly) let banks fail. This defining capitalist act was anathema to Western politicians who wouldn’t let their banking cronies down.
Indeed British socialist Prime Minister Gordon Brown blackmailed Iceland into reparations while ‘masterminding’ the ill-conceived wave of bailouts amongst banks which needed to be left to die. Offered an EU deal which would enshrine feudal penury, the Icelandic government bravely opted for an independent solution. A recovery of sorts has led to the political status quo being almost restored. However, it came at a colossal cost to Iceland’s currency: the krone has depreciated by 99.99% compared to gold since 1960.
Auroracoin has a finite supply, so no nasty socialist depreciation tricks like printing money can be effected. Likewise, it creates a fascinating experiment in mercantile life. Every Icelander can have 31.8 free coins to begin the process, thus creating a ready pool for trade to take place. The idea is to remove the failed corporatist socialist banker-government nexus from the food chain of money. Move beyond banking and you reach the peer to peer world powering new age finance.
Naturally this is anathema to central and retail bankers alike, while politicians are appalled at the idea of people being sovereign in their decisions. However, that’s the core lesson to be learnt in the digital age: if you don’t have a valid position in the food chain then you will be dis-intermediated. Socialist interventionism is redundant when people are free to choose how they spend their independent currency. As the auroraCoin manifesto notes: “Crypto currencies are a very important milestone in this fight for liberty. They bring the hope of a new era of free currencies, immune to the meddling of politicians and their cronies.”
Chalk up one for freedom and a mercantile future. Or of course you can prefer to endorse the failed socialist mantra of plenty through intervention and enjoy another 50 years of 99.9% erosion in the value of your krone. Iceland has 96% internet penetration, the world’s highest. With 330,000 citizens, the entire nation is as populous as a small city elsewhere. Thus the numbers are highly manageable, while the fact that auroracoin is fully tradable overseas will come as an exciting development for Icelanders, who have been restricted in holding foreign currency since foreign exchange restrictions were imposed. Such capital controls crush trade – q.v. the stagnant British socialist state before Margaret Thatcher reversed the decline of Britain in 1979.
Already there has been an overwhelming rush of Icelanders clamoring for their free auroracoins. They are at the forefront of the new era of money, a new era of freedom to choose.
• Why Did Europe Choose The Chaff Over The Wheat? (RT)
Engagement in Ukraine by the European Parliament has been clearly apparent in recent years. Alas the transcripts provide an unfortunate reminder that the size of the EU apparatus has ultimately fed an incompetent blob as opposed to producing rational decisions. An obsession with expansion at all costs of the EU sphere of influence has dominated thought. Back on December 13, 2012, the European Parliament passed a rather chilling motion, made more acutely frightening by subsequent events:
“The EU is concerned about the rising nationalistic sentiment in Ukraine, expressed in support for the Svoboda Party, which, as a result, is one of the two new parties to enter the Verkhovna Rada; recalls that racist, anti-Semitic and xenophobic views go against the EU’s fundamental values and principles and therefore appeals to pro-democratic parties in the Verkhovna Rada not to associate with, endorse or form coalitions with this party.” A year before the Maidan protests, the EuroParl had successfully ‘separated the wheat from the chaff.’ Tragically, by the time the memo got up the chain of command (for want of a better term), the EU ended up endorsing the chaff.
It’s not as if the EU was indolent in Ukraine – far from it. While many western Europeans suffer a prevailing ignorance of eastern Europe’s overlapping multiethnic strands that are legacies of empire, the EU has become vociferously involved in Ukraine in recent years. UK blogger, Richard North, who has been at the forefront of analyzing EU inexactitude for years, recently revealed the remarkable extent of EU activity. For anybody who thinks the EU has an unparalleled ability to waste money, this action may demonstrate a new nadir. As North notes:
“The EU spent €389 million on Ukraine between 2011 and 2013, apportioning money to pressure groups such as ‘the Agency for Legislative Initiatives Citizens Association’, and ‘the All-Ukrainian Non-Governmental Organization Committee of Voters of Ukraine’. Some European taxpayer cash was also given to the ‘All-Crimean Association of Voters for Civil Peace and Interethnic Harmony’.”
Yes, you read that right. The EU’s unelected bureaucrats spent nearly half a billion dollars supporting all manner of nebulous NGOs, each expected to endorse the EU’s ongoing commitment to…well whatever is the hipster cause du jour of the metropolitan trendy classes who still believe ‘more Europe’ is actually worthwhile. Or to put it another way, as Richard North says: “The EU was blundering into a situation with all the finesse of a ballet dancer in size 12 boots.”
It takes a particular kind of hubris, cultivated over decades in the Brussels bubble to be convinced that your comprehension of a situation is better than the indigents’. The EU, like all unaccountable undemocratic regimes, has convinced itself of its delusion that the Brussels nanny super state always knows best, despite being unable to balance its accounts, or manage its flawed currency let alone help its citizens find jobs. Half a billion dollars would surely have been welcomed to assist the Mediterranean unemployed from 2011-2013. Why then was it poured into a flawed odyssey promoting the EU as a land of milk and honey?
Whereas those with perspective might now spot that the broad arc of history appears to be moving away from Europe’s economic hegemony with the US…alas the Brussels apparatus has finessed the art of spending other people’s money to expand the European empire to the point of complete delusion: funding puppet theaters while hoping to create puppet Eurozone satellite states: aka ‘a tilting at wind farm’ policy led by Commissioner Quixote. However, Brussels’ sphere of influence has now been checked by its remarkably incompetent and typically extravagant Ukrainian junket.
In Kiev, entirely contrary to the considered analysis of the Euro Parliament, extremists have been encouraged to join a rainbow coalition ranging from kleptocrats to wannabe eurocrats with an unhealthy smattering of extremists in their midst. Even by the consistently dismal standards of Ukrainian government, the EU appears to have plumbed new depths. Then again it is challenging to realistically assess the scale of the staggering inadequacy of Europe’s foreign policy, led by the breathtakingly incapable Catherine Ashton, an embarrassment in high office.
In a state of abject bankruptcy brought on by two decades of utterly dysfunctional government (of different political shades and orientation), the Ukraine now festers while Europe grandstands over its fate.
• Chinese Banking Liberalization: Time To Invest In The Walking Dead (RT)
China proposes opening banking to allow foreigners to share in – well, probably not the profits, and therein lies the problem… Nature abhors a vacuum. Financial vacuums are invariably filled by suckers, ideally greedy ones. When it comes to emerging markets, the greediest suckers are invariably western bankers. With all the poise and self-restraint of Homer Simpson faced with an all you can eat buffet western banks have a rich history of leveraging their way into a smorgasbord of emerging markets and deleveraging their way towards bankruptcy on the way out.
Just ask Barings. It wasn t Nick Leeson who broke it originally. Rather a Bank of England consortium rescued Barings in 1890 after it bought too much South American debt… Nearly a century later, western bankers masterminded their near downfall in the 1970s, lending with leveraged gusto to emerging markets in South America (again!). Conventional banker wisdom suggested sovereign nations couldn’t go bankrupt. When these countries simply didn t bother repaying their loans: default felt eerily similar to normal bankruptcy…
Therefore emerging markets resemble banker catnip. Now western lenders are wildly excited about a brave new frontier: the Chinese is eager to open the banking market, welcoming foreign participation. In terms of poisoned chalices, this one comes with a gold plated ivory handled revolver attached.
The Chinese financial system is not looking pretty with domestic lending on the verge of crisis. Overall the broad brush of financial reform is long-term good but we can t rely on the western banks to finesse their timing for the next cycle. Yes, the pure Communist delusion failed in China as spectacularly as elsewhere, as several millions starved by Mao would readily attest, if they weren t already dead. Thus the long march to capitalism was undertaken with significant quasi-oxymoronic central planning and cautious incremental liberalization. 35 years later the Chinese economy dangles on a debt precipice.
China has enjoyed a marvelous economic growth phase giving it a serious opportunity to challenge western domination just as the old world has gone backwards, indulging divisive reactionary socialism once more. Thus we reach a situation where the Chinese are considering further bank deregulation. For instance, prescriptive interest rate caps on loans (which have created a bubble in alternative financing sources – peer to peer lending and other quasi-banking initiatives) are earmarked for removal. China also proposes encouraging new sources of capital from overseas. Naturally, the usual suspects, idiot western bankers, can only see upside. Besides they don t have to worry about bankruptcy risks as they remain convinced moronic western governments will always bail the bankers out when it all goes pear shaped.
As brilliant Societe Generale analyst Albert Edwards has noted, the copper price is a key indicator in just how far removed from pure banking Chinese borrowing has become. Remarkably high interest rates aimed at slowing growth have created opportunities for all manner of carry trades (based around borrowing against copper) which deliver cash to invest in high yielding Chinese private debt. It’s complex but the key point here is that the copper price has recently fallen off a cliff. In other words, there may be a credit contraction in China right now which isn’t apparent in the banks themselves (yet) but it is obvious if you consider copper prices alongside growing problems in peer to peer lending.
Moreover, the first Chinese corporate bond default of recent times took place the other week. Bonds rarely default in total isolation, preferring to do so in waves. China has been trying to rein in lending for some time so expect more. With market confidence fragile& what better time to open Chinese banking to intrepid westerners? Their track record is impeccable: vacuuming up any old rubbish late in the economic cycle and then retrenching back west, tails between their legs when the boom implodes across their balance sheet.
That said, will the Chinese economy now proceed to collapse with gusto and go through a long difficult deflationary cycle driven by the sort of policies which have left the EU/Japan stagnating? I doubt it. CLSA economist Russell Napier sapiently notes China will go the short sharp shock route: let the Yuan devalue then restart the whole credit cycle again. However that leaves a massive caveat emptor above the Chinese market right now. Those who rush to exploit deregulation will be in the wrong place at the wrong time. Welcome to China, bankers! You too can buy the zombie loan portfolio of your dreams!
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