Apr 212014
 
 April 21, 2014  Posted by at 1:32 pm Finance Tagged with: , ,


Detroit Publishing Co. Nightfall on the Ohio River at Cincinnati 1910

US President Barack Obama begins a three-day visit to Japan on Wednesday. As for what he’s going to be talking about, I can give you a hint or two. First of all, there are ongoing tensions between Japan and China, something both nations have a very long history of. And second, these tensions risk flaring up as they move towards intensifying domestic economic troubles, as their exports dwindle.

Prime Minister Shinzo Abe may himself be a nationalist, for what that’s worth, but there can be no doubt that his latest move in connection to the Yasukuni war shrine is also at least in part a piece of political opportunism. Abe knows he needs all the votes and support he can get, and badly.

Outrage Over Abe’s Gift To War Shrine

Japan’s Prime Minister Shinzo Abe’s gift to the controversial Yasukuni war shrine has sparked a Chinese charge that he was offering ‘a slap in the face’ to US President Barack Obama days ahead of his visit. The unapologetically nationalist Abe on Monday donated a sacred masakaki tree to coincide with the start of a three-day festival, a shrine official said. The sending of a gift has been seen as a sign that Abe does not intend to go to the shrine – as he did on December 26, sparking fury in Asia and earning him a diplomatic slap on the wrist from the United States, which said it was disappointed. Yasukuni Shrine honours Japan’s war dead, including some senior military and political figures convicted of serious crimes in the wake of the country’s World War II defeat.

But given the latest developments in the Japanese economy, any support he can get from appealing to nationalistic Japanese sentiments may be too little and too late. One gets the impression from the numbers released to day that Japan has hit sort of a financial perfect storm. The scariest number is probably that its trade deficit QUADRUPLED(!) from a year ago. All you can really say about that is it’s insane. Where the storm gets perfect is in the fact that although the yen fell close to 20% since Abe took the reins 17 months ago, exports are hardly up if at all. That is one huge defeat for Shinzo, since he caused that drop on purpose with the explicit goal of boosting exports. The flipside of that intentional devaluation is of course that imports get much more expensive, and the fall-out, pun intended, of the Fukushima disaster means the country needs to import a lot more – relatively expensive – oil and gas. Bloomberg:

Japan’s Trade Deficit Widens as Export Growth Weakens

Japan’s weakest export growth in a year spurred a wider-than-forecast trade deficit in March, adding to challenges for Prime Minister Shinzo Abe in steering the economy through the aftermath of an April 1 sales-tax rise. The 1.8% rise in the value of shipments overseas from a year earlier, reported today by the Ministry of Finance, compared with a 6.5% median estimate of 27 economists in a Bloomberg News survey. An 18.1% jump in imports helped widen the deficit to the biggest ever for the month. [..]

Export volumes fell 2.5% in March from a year earlier. At the same time, the Japanese currency’s 19% drop since Abe came to power in December 2012 has boosted import values, contributing to 21 straight monthly deficits – the longest slide in comparable data back to 1979. [..] The [trade] deficit quadrupled from a year earlier to 1.45 trillion yen ($14.1 billion), larger than a 1.08 trillion yen projection by economists. On a seasonally adjusted basis, the deficit grew to 1.71 trillion yen.

There may have been an 1.8% increase in export values from a year ago, but in Q1 2014 exports were even down from Q4 2013. Now, it’s obvious that the Japanese people may have spent more than they otherwise would have to avoid the April 1st sales tax hike, and that may have driven imports a little higher. But that also means that domestic consumption will fall going forward, and that’s another perfect hit against Abenomics, where the intended idea was to increase spending, in order to escape deflation. And who will seriously claim that the Japanese are likely to spend more when they see these numbers?

Many have seen their salaries plunge, and are looking worriedly at their savings. That started the entire deflation scenario in the first place, and Abenomics has been a gigantic failure in turning it around. As I predicted many times. If memory serves, the sales tax hike, from 5% to 8%, was supposed to bring $80 billion in revenues, meant to pay off national debt, but Abe spent $50 billion on measures to offset it, leaving a – hope for – extra $30 billion. Which is not a giant sum for the world’s third-biggest economy, and one that hardly seems worth scaring the pajamas off of all the sweet little elderly ladies for, kept up at night by nightmares about their pensions and savings.

Maybe Obama will come mainly to tell Abe goodbye, using some diplomatic version of “See ya, wouldn’t want to be ya”. Remember, Abenomics has not exactly been a free piece of policy, it’s involved a barrage of stimulus measures, and while people may lose count somewhere in between a 200% debt to GDP ratio and one way north of that, just wait till interest rates go up. Tokyo relies on those same elderly ladies to buy its sovereign bonds, but they won’t do that forever. FT:

Japan Posts Largest-Ever Trade Deficit (FT)

Japan suffered its largest-ever trade deficit last fiscal year, underlining a wrenching structural shift for an economy long renowned as an export powerhouse. The gap between the value of Japan’s exports and that of its imports grew by more than two-thirds in the 12 months through March, to Y13.7tn ($134 billion), according to government data released on Monday. It was the third consecutive fiscal year of deficits, the longest streak since comparable records began in the 1970s. Toyota, Hitachi and other large Japanese companies have enjoyed soaring profits as a result of the weaker yen, which has fallen by a fifth against other major currencies since November 2012.

But the improvement has come less from increased exports than from flattered exchange rates on overseas sales. Japanese export volumes have barely risen and the yen value of goods shipped to foreign markets has increased much more slowly than the value of imports. Exports actually declined slightly by volume in January-March compared with the previous quarter, by 0.2% on a seasonally adjusted basis, according to calculations by Credit Suisse, even as imports grew by 4.5%. “Import volume growth appeared stronger than we had envisaged,” said Hiromichi Shirakawa, the Swiss bank’s chief Japan economist. [..] National fuel imports jumped by 18% by value last year, according to Monday’s trade data…

Japan resembles a sinking ship more than anything else these days. The only parties that make out like bandits from Abenomics are the usual suspects, banks and other multinational corporations. And while they may be inclined to, or coerced into, invest their additional profits in Abe bonds for a while, they can buy Greek and Italian paper that has much higher yields that Japan’s 0.6% or so, and is implicitly guaranteed by the EU. And then Abe has another headache:

Fukushima No. 1 Boss Admits Water Woes Out Of Control

The manager of the Fukushima No. 1 nuclear power plant admits to embarrassment that repeated efforts have failed to bring under control the problem of radioactive water, eight months after Prime Minister Shinzo Abe told the world the matter had been resolved. Tokyo Electric Power Co., the plant’s operator, has been fighting a daily battle against contaminated water since Fukushima was wrecked by the March 2011 earthquake and tsunami. Abe’s government pledged half a billion dollars last year to tackle the issue, but progress has been limited. “It’s embarrassing to admit, but there are certain parts of the site where we don’t have full control,” Akira Ono told reporters touring the plant last week.

He was referring to the latest blunder at the plant: channeling contaminated water into the wrong building. Ono also acknowledged that many difficulties may have been rooted in Tepco’s focus on speed since the 2011 disaster. “It may sound odd, but this is the bill we have to pay for what we have done in the past three years,” he said.

Three years after the quake, Japan still blunders its way through the aftermath. When is that going to change? When the sea water off Seattle and Vancouver turns radio-active? Wonder what Obama will have to tell Abe about this, and what part us proles will be allowed to hear about? Also wonder what the Japanese people will say when Abe, inevitably because of the dismal economic numbers, starts suggesting firing up the nukes again, and someone suggest it might have been a better idea to evacuate Tokyo after all.

Then again, I doubt it’ll all be Abe’s worry much longer anymore. Still, maybe we ourselves should worry a bit more about what happens when a nation and economy the size of Japan must begin sending out Mayday signals. By the looks of it, it will soon have its back against the wall. And that can lead to desperate things. Which I would think Abenomics already is/was, but that was domestic. What if the desperation starts looking beyond the Japanese borders?

Japan Posts Largest-Ever Trade Deficit (FT)

Japan suffered its largest-ever trade deficit last fiscal year, underlining a wrenching structural shift for an economy long renowned as an export powerhouse. The gap between the value of Japan’s exports and that of its imports grew by more than two-thirds in the 12 months through March, to Y13.7tn ($134 billion), according to government data released on Monday. It was the third consecutive fiscal year of deficits, the longest streak since comparable records began in the 1970s. Toyota, Hitachi and other large Japanese companies have enjoyed soaring profits as a result of the weaker yen, which has fallen by a fifth against other major currencies since November 2012.

But the improvement has come less from increased exports than from flattered exchange rates on overseas sales. Japanese export volumes have barely risen and the yen value of goods shipped to foreign markets has increased much more slowly than the value of imports. Exports actually declined slightly by volume in January-March compared with the previous quarter, by 0.2% on a seasonally adjusted basis, according to calculations by Credit Suisse, even as imports grew by 4.5%. “Import volume growth appeared stronger than we had envisaged,” said Hiromichi Shirakawa, the Swiss bank’s chief Japan economist.

Japan’s energy import bill has risen sharply in the wake of the Fukushima nuclear accident in 2011. All of the country’s operable atomic reactors are offline pending safely reviews, robbing Japan of a power source that provided 30% of its electricity before the disaster. Utilities have been forced to buy more foreign oil and gas to make up the difference, and a weaker yen has made each barrel that much pricier. National fuel imports jumped by 18% by value last year, according to Monday’s trade data. Japan’s economy has been growing for more than a year, but a dependence on domestic consumer spending has left it vulnerable, experts say, particularly given an increase in the national sales tax that took effect on April 1.

Experts expect gross domestic product to contract in the current quarter, in part because many consumers brought purchases forward to beat the tax rise, and the question is how quickly the economy will shake off the effects of the tax increase. Pre-tax-hike demand was likely responsible for some of the unusually sharp increase in imports, experts said, suggesting growth in the trade deficit could slow beginning this month. March’s deficit was Y1.45tn, higher than the roughly Y1tn average forecast of economists surveyed by Bloomberg.

Read more …

Japan’s Trade Deficit Widens as Export Growth Weakens (Bloomberg)

Japan’s weakest export growth in a year spurred a wider-than-forecast trade deficit in March, adding to challenges for Prime Minister Shinzo Abe in steering the economy through the aftermath of an April 1 sales-tax rise. The 1.8% rise in the value of shipments overseas from a year earlier, reported today by the Ministry of Finance, compared with a 6.5% median estimate of 27 economists in a Bloomberg News survey. An 18.1% jump in imports helped widen the deficit to the biggest ever for the month.

Exports by volume fell the most since June last year, suggesting external demand may fail to provide much support for an economy set to contract this quarter. A spending spree ahead of the tax increase boosted imports, already swollen by a surge in energy costs due to the yen’s slide and nuclear shutdowns. “In spite of the continued weaker yen, the performance of Japanese exporters is quite weak compared to competitors like Korea or Taiwan,” said Junko Nishioka, chief Japan economist at Royal Bank of Scotland Group Plc in Tokyo. The trade balance will deteriorate “unless the government decides to restart nuclear power plants,” she said.

The rush demand ahead of the tax increase could have prompted companies to divert shipments to the domestic market, rather than overseas, crimping export growth, said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. Abe’s drive to shake off more than a decade of deflation and economic drift helped drive down the yen, boosting profits of exporters such as Toyota Motor Corp. even as shipment volumes remain sluggish. Export volumes fell 2.5% in March from a year earlier. At the same time, the Japanese currency’s 19% drop since Abe came to power in December 2012 has boosted import values, contributing to 21 straight monthly deficits – the longest slide in comparable data back to 1979. [..] The [trade] deficit quadrupled from a year earlier to 1.45 trillion yen ($14.1 billion), larger than a 1.08 trillion yen projection by economists. On a seasonally adjusted basis, the deficit grew to 1.71 trillion yen.

Read more …

Fukushima Manager Admits To ‘Embarrassing Failure’ (RT)

The manager of the stricken Fukushima nuclear power plant has admitted not having full control of the facility. Contrary to the statements of the Japanese PM, TEPCO’s Akira Ono said attempts to plug the leaks of radioactive water had failed. “It’s embarrassing to admit, but there are certain parts of the site where we don’t have full control,” Ono told reporters touring the plant this week, reported Reuters. Last year, the Japanese PM attempted to assure the world that the situation at the stricken nuclear power plant was under control. However, over the last couple of months the clean-up procedure at the plant has been fraught with difficulties.

Tokyo Electric Power Co (TEPCO), the plant’s operator, has consistently faced contaminated water leaks at the Fukushima plant.Water has to be pumped over the facilities stricken reactors in order to keep them from overheating, but this process creates large quantities of contaminated water which has to be stored in tanks on the site. Ono acknowledged to press that in TEPCO’s rush to deal with the stricken facility following the earthquake-triggered tsunami in 2011, the company may have made mistakes. “It may sound odd, but this is the bill we have to pay for what we have done in the past three years,” he said. “But we were pressed to build tanks in a rush and may have not paid enough attention to quality. We need to improve quality from here.”

Read more …

Fukushima No. 1 Boss Admits Water Woes Out Of Control (Japan Times)

The manager of the Fukushima No. 1 nuclear power plant admits to embarrassment that repeated efforts have failed to bring under control the problem of radioactive water, eight months after Prime Minister Shinzo Abe told the world the matter had been resolved. Tokyo Electric Power Co., the plant’s operator, has been fighting a daily battle against contaminated water since Fukushima was wrecked by the March 2011 earthquake and tsunami. Abe’s government pledged half a billion dollars last year to tackle the issue, but progress has been limited. “It’s embarrassing to admit, but there are certain parts of the site where we don’t have full control,” Akira Ono told reporters touring the plant last week.

He was referring to the latest blunder at the plant: channeling contaminated water into the wrong building. Ono also acknowledged that many difficulties may have been rooted in Tepco’s focus on speed since the 2011 disaster. “It may sound odd, but this is the bill we have to pay for what we have done in the past three years,” he said. “But we were pressed to build tanks in a rush and may have not paid enough attention to quality. We need to improve quality from here.” The Fukushima No. 1 plant, some 220 km northeast of Tokyo, suffered three reactor core meltdowns in the world’s worst nuclear disaster since Chernobyl in 1986.

The issue of contaminated water is at the core of the clean-up. Japan’s nuclear regulator and the International Atomic Energy Agency say a new controlled release into the sea of contaminated water may be needed to ease stretched capacity as the plant runs out of storage space. But this is predicated on the state-of-art ALPS (Advanced Liquid Processing System) project, which removes the most dangerous nuclides, becoming fully operational. The system has functioned only during periodic tests.

Read more …

China lets banks fail, even small ones, and it risks bank runs up the wazoo. Will they risk it?

Moving to Protect Depositers, China Signals Some Banks Could Fail (Bloomberg)

Chinese Premier Li Keqiang’s plan to introduce deposit insurance is meant to comfort the nation’s savers as bad loans mount. In the bond market, it’s fueling speculation he’s preparing to let some banks collapse. Authorities may tolerate failures of smaller banks once depositor safeguards are in place, Kwong Li, chief executive officer of China Lianhe Credit Rating Co. said. Among lender bonds rated at or below AA, the extra yield investors demand to hold the 2022 securities of China Bohai Bank in the northern city of Tianjin surged to an 11-month high of 245 basis points on April 17. The premium on the notes due 2019 of Harbin Bank, a lender near China’s border with Russia, has jumped 41 basis points in the past year to 217.

“With the deposit insurance coming online, the government is signaling they may be willing to let some of the smaller banks default or be consolidated,” Li said in an interview in Shanghai on April 15. Bank defaults “probably won’t happen until deposit insurance is in place.” Lianhe Credit is Fitch Ratings Ltd.’s China joint venture. Premier Li pledged last month to introduce protection for savers this year as he shifts toward letting the market set rates, a move that may push up borrowing costs for smaller lenders even as it forces them to pay higher interest to depositors. Almost 1,000 customers rushed to outlets of Jiangsu Sheyang Rural Commercial Bank on March 24 amid rumors the lender may go bankrupt, Xinhua News Agency reported March 26.

Read more …

Beijing wants full banking power, but it’s llike trying to hold on to an eel with your hands. Slippery stuff.

China Heightens Alert Over Illegal Funds As Internet Finance Booms (Reuters)

The fast development of internet finance in China is driving an increase in cases of illegal fund raising, a situation that could worsen if regulation does not catch up, a senior official at the country’s banking sector watchdog said on Monday. Liu Zhangjun, a director at the China Banking Regulatory Commission (CBRC) in charge of combating illegal fund-raising, said some of the recent cases have been disguised as normal online financial services, requiring tighter scrutiny. He particularly singled out cases conducted in the name of “crowd funding” and “P2P lending”, two types of internet finance that are gaining increasing popularity among China’s vast number of depositors.

“As internet finance is developing rapidly, many illegal funding activities are moving from offline to online,” Liu told a media briefing jointly held with the Ministry of Public Security and the Supreme Court. “Some lawbreakers are seeking loopholes left by a regulatory vacuum and blurred legal boundaries for new forms of financing,” he added. Beijing has consistently taken a very harsh stance towards illegal fund-raising, a term usually used to describe deposit-taking from the public by people without licences to do so, because it can lead to financial market disorder and threaten social stability.

Read more …

An inter-family feud?

China Signals Change As It Investigates A Family’s Riches (NY Times)

His son landed contracts to sell equipment to state oil fields and thousands of filling stations across China. His son’s mother-in-law held stakes in pipelines and natural gas pumps from Sichuan Province in the west to the southern isle of Hainan. And his sister-in-law, working from one of Beijing’s most prestigious office buildings, invested in mines, property and energy projects. In thousands of pages of corporate documents describing these ventures, the name that never appears is his own: Zhou Yongkang, the formidable Chinese Communist Party leader who served as China’s top security official and the de facto boss of its oil industry.

But President Xi Jinping has targeted Mr. Zhou in an extraordinary corruption inquiry, a first for a Chinese party leader of Mr. Zhou’s rank, and put his family’s extensive business interests in the cross hairs. Even by the cutthroat standards of Chinese politics, it is a bold maneuver. The finances of the families of senior leaders are among the deepest and most politically delicate secrets in China. The party has for years followed a tacit rule that relatives of the elite could prosper from the country’s economic opening, which rewarded loyalty and helped avert rifts in the leadership. Whether to wipe out Mr. Zhou’s influence or to send an unmistakable signal to the entire party elite, Mr. Xi appears to be rewriting the rules. He has widened the inquiry into Mr. Zhou to include his wife, a son, a brother, a sister-in-law, a daughter-in-law and the son’s father-in-law, all of whom have been taken away by the authorities in recent months, according to relatives and witnesses. [..]

Some political analysts argue that a leader of Mr. Zhou’s status would not face an inquiry of this kind unless Mr. Xi regarded him as a direct threat to his power. In other words, Mr. Zhou is the loser in a political struggle. His family’s financial dealings lost their immunity only because Mr. Zhou fell from favor, not because elite business dealings were being criminalized. But another school of thought is that Mr. Xi considers the enormous agglomeration of wealth by spouses, children and siblings of top-ranking officials a threat to China’s stability by encouraging mercenary corruption and harming the party’s public standing.

Read more …

Ukraine Must Solve Crisis Itself To Avoid Bloodshed, IMF Debt Slavery (RT)

Mediation won’t resolve the crisis in Ukraine, as all international players have their own interests there, Wide Awake News founder Charlie McGrath told RT, adding that only the Ukrainians can drag their country out of the current “quagmire.” The document on de-escalation – which Russia, the US, the EU, and Ukraine agreed on – is unlikely to fulfill its purpose and bring peace to the crisis-hit country, McGrath stressed. With all the international players involved in the Geneva deal and having their own interests in Ukraine, the country finds itself “caught in the middle of an old school-style, Cold War-type battle,” the Wide Awake News founder explained.

Moscow is looking for greater influence in its neighbor state because “there’s a lot of wealth that’s transferred to Ukraine via Russia through natural gas pipelines,” he said. “NATO wants to step up and get that much closer to Russia; they want more presence inside Eastern Europe,” the journalist said, adding that Poland is already using the accession of Ukraine’s Republic of Crimea into Russia “as a great excuse” to put US troops on its territory. According to McGrath, the International Monetary Fund “is eager to get its claws into Ukraine and sap the natural resources and the natural trade routes” that the former Soviet state possesses. What Washington really wants is “to implement austerity on Ukraine,” as it keeps “dangling this carrot of foreign aid” before the coup-imposed authorities in Kiev, he said.

If financial support from the IMF arrives in Ukraine, it will only help the banks – turning the population into “nothing more than debt slaves, like we’ve seen in other nations throughout Europe,” the journalist warned. McGrath also reminded that the events in Ukraine “aren’t an accident,” with the US contributing largely to the turmoil. “You don’t need to take a journalist’s word for it on RT. You can listen to Dennis Kucinich, the Congressman for the US, he pointed out on a recent interview with Bill O’Reilly on FOX News that there were quasi-government agencies that spent billions of dollars, 65+ programs to destabilize the elected government of Ukraine,” he stressed.

Read more …

“I guess it still doesn’t occur to most that housing had its Fed, new-era investor, and liquidity induced ‘short squeeze’, which pulled everybody into the pool at the same time … “

It’s Back Again – Housing Stimulus Hangover! (Mark Hanson)

Bank Of America Merryl Lynch kinda shocked me last week by lowering its resi investment GDP growth forecast by 33%, citing this is “not a v-shaped recovery” and “we must be patient”. Say what?!? For the past two years house prices — on the heels of nuclear-option rates intervention and the new-era, all-cash investor class — have “vee’d” greater than any time in history, even 2003 to 2007. Moreover, years of headlines of “lines around corner”, and “50 bidders on every house” were either on, or never far from, any front page worldwide. So, now BOAML is back-peddling, saying that we are in the early stages of a recovery and have to be ‘patient’ for the real-deal, durability and escape velocity to take place??? This is twilight zone stuff.

I guess it still doesn’t occur to most that housing had its Fed, new-era investor, and liquidity induced ‘short squeeze’, which pulled everybody into the pool at the same time, filled all the pent-up demand and pulled even more forward. And now, just like in 2007 and again following the tax-credit in 2010, the sector is in the midst of a “stimulus hangover” at which time housing “resets to end-user fundamentals”, meaning much lower volumes and prices. We are already seeing the demand destruction, which always precedes lower prices.

BOAML reduced its residential investment’s contribution to GDP by 33% for 2014. However, this is still a best case scenario. Moreover, they failed to include the GDP headwind from the loss of foreclosures and short sales, which require the exact same labor and materials as builders use to start houses and which dwarfed the ML’s 100k starts reduction for years leading into 2014. Lastly, they still need to downgrade Existing Sales, on which the broker commission component to GDP by itself is 60% of total builder residential investment.

Read more …

Wall Street Deregulation Pushed By Clinton Advisers (Guardian)

Wall Street deregulation, blamed for deepening the banking crisis, was aggressively pushed by advisers to Bill Clinton who have also been at the heart of current White House policy-making, according to newly disclosed documents from his presidential library. The previously restricted papers reveal two separate attempts, in 1995 and 1997, to hurry Clinton into supporting a repeal of the Depression-era Glass Steagall Act and allow investment banks, insurers and retail banks to merge.

A Financial Services Modernization Act was passed by Congress in 1999, giving retrospective clearance to the 1998 merger of Citigroup and Travelers Group and unleashing a wave of Wall Street consolidation that was later blamed for forcing taxpayers to spend billions bailing out the enlarged banks after the sub-prime mortgage crisis. The White House papers show only limited discussion of the risks of such deregulation, but include a private note which reveals that details of a deal with Citigroup to clear its merger in advance of the legislation were deleted from official documents, for fear of it leaking out. “Please eat this paper after you have read this,” jokes the hand-written 1998 note addressed to Gene Sperling, then director of Clinton’s National Economic Council.

Earlier, in February 1995, newly-appointed Treasury secretary Robert Rubin, his deputy Bo Cutter and senior advisers including John Podesta gave the president three days to decide whether to back a repeal of Glass-Steagall. In what Cutter described as “an action forcing event”, he wrote to Clinton on 21 February, telling him Rubin wanted to announce the policy before it was raised by the House banking committee on 1 March. “In order to position Secretary Rubin – rather than any of the regulators – as the Administration’s chief spokesman on this issue, the Secretary intends to discuss the Administration’s position at a speech which will be covered by the press in New York on 27 February,” wrote Cutter on 21 February.

Read more …

Excerpt from – former Reagan Tresury department – Stockman’s book. Very good reading. Who needs a fantasy horror story when you have this?

FDR’s Hayseed Coalition: Roots Of Modern Money Printing (Stockman)

It was not the anti-gold fulminations of J. M. Keynes at the time of the British crisis in 1931 that finally brought down the gold standard and sound money. Instead, its real demise came two years later in the form of the Thomas Amendment, a powerful expression of the monetary populism which animated FDR’s hayseed coalition. The amendment was hatched at midnight on April 18 1933, during FDR’s famous White House rendezvous with the fiery leader of the hard-scrabble farm belt, and embodied four “discretionary” presidential options to debauch the gold dollar. These measures have been dismissed by historians as a casual sop by FDR to farm state radicals, but they could not be more mistaken.

The Thomas Amendment was a nascent version of today’s delusion that economic setbacks, shortfalls, and disappointments are caused by too little money. The true cause, both in the early 1930s and today, was actually an excess of debt. This explanation is never appealing to politicians because there is no real cure for the liquidation of excess debt, except the passage of time and the forfeiture of the ill-gotten gains from the financial bubbles preceding it. By contrast, the populists of the New Deal era believed that the state could easily and quickly remedy a shortage of money by printing more of it. In this respect they are in a line of descent that extends to the depredations of the Bernanke Fed in the present era.

The line of continuity started with FDR and Senator Thomas and included the latter’s guru, Professor Irving Fisher of Yale. It then extended into the present era via Professor Milton Friedman of Chicago, who embraced wholeheartedly Fisher’s quirky theory of deflation. The latter, in turn, became the virtual obsession of Friedman’s acolyte, Professor Bernanke of Princeton, whose academic work is based on Friedman’s erroneous interpretation of the Great Depression. Upon becoming chairman of the Fed, Bernanke then foisted the Fisher-Thomas-Friedman deflation theory upon the nation’s economy in a panicked response to the Wall Street meltdown of September 2008. Yet monetary deflation was no more the cause of the 2008 crisis than it had been the cause of the Great Depression.

The monetary populists of the 1920s and 1930s, including Professor Fisher, had “cause and effect” backward. The sharp reduction after 1929 in the money supply was an inexorable consequence of the liquidation of bad debt, not an avoidable cause of the depression. The measured money supply (M1) even in those times consisted mostly of bank deposit money rather than hand-to-hand currency. And checking account money had declined sharply as an arithmetic consequence of the collapse of what had previously been a fifteen-year buildup of bad loans and speculative credit.

During 1929–1933 commercial bank loans outstanding declined from $36 billion to $16 billion. Not surprisingly, as customer loan balances fell sharply, so did checking accounts or what can be termed “bank deposit money” as opposed to currency in circulation. The latter actually grew by $1.1 billion during the four years after 1929, to about $5.5 billion. By contrast, it was the loan-driven checking account portion of M1 which dried up, declining from $25 billion to $17 billion over the same period. And the reason was no mystery: the way banks create demand deposits is to first issue loan credits to their customers. Indeed, in the modern world money supply follows credit, and rarely do central bankers inordinately restrict the growth of the latter.

Read more …

Bleak Future For Australian Manufacturing (FT)

Ford’s normally busy factory is deserted and eerily quiet. For two weeks the carmaker and dozens of its component suppliers are on a temporary shutdown to cut costs amid slack demand. “Far worse is coming,” says Anthony Anderson, a shop steward who has worked for 30 years at the plant in Geelong, a coastal city of 225,000 people deep in Australia’s manufacturing heartland near Melbourne. “This assembly plant is closing in two years and with it will go thousands of jobs at component suppliers across the region,” he says.

It is almost a year since Ford said it would stop making cars in Australia, blaming a strong Aussie dollar, high labor costs and Asian competition. General Motors and Toyota followed when the new government declined to offer extra subsidies, declaring an end to an “era of entitlement” that saw carmakers gobble A$30 billion (US$28 billion) in taxpayer assistance between 1997 and 2012. Several thousand direct jobs will be lost by 2017 and a further 40,000 suppliers jobs are under threat as the curtain comes down on a century of car manufacturing Down Under. The demise of such an iconic industry is raising questions about the viability of other manufacturing sectors and whether Australia has become too expensive to make things.

“Australian manufacturing has been in relative decline as a share of the economy and of employment for the past 30 years, much like the UK,” says Ivan Colhoun, economist at ANZ bank. “That trend seems likely to continue.” Australia’s small market, high wages, a strong currency and Canberra’s decision to stop corporate handouts were negative forces affecting the sector, he says. The crunch in manufacturing intensified in the global financial crisis, with 77,000 jobs lost between 2007 and 2012, reducing employment in the sector to 967,000 or 8% of the workforce. The industry’s troubles, when combined with a sharp slowdown in mining investment, pose a threat to Australia’s record of 22 years of consecutive economic growth.

Read more …

Nomi Prins has something to say.

“We are in great danger”: Ex-Banker Details How Mega-Banks Destroyed America (Salon)

“It no longer matters who sits in the White House,” former Goldman Sachs managing director Nomi Prins writes in her new book “All the Presidents’ Bankers: The Hidden Alliances That Drive American Power.” “Presidents no longer even try to garner banker support for population-friendly policies, and bankers operate oblivious to the needs of national economies. There is no counterbalance to their power.” Prins, who also worked for Bear Stearns, Lehman Brothers and Chase Manhattan Bank, is now a fellow at the think tank Demos and a member of Sen. Bernie Sanders’ Federal Reserve Advisory Council. Salon spoke with Prins about a century of presidential coziness with bankers; Barney Frank’s defense of big banks’ power; and how to “break the alliances” before they “break us.” A condensed version of our conversation follows.

It’s no secret that big banks play a big role in shaping U.S. banking policy. Your book argues they play a big role in all kinds of areas, like foreign policy. How broad, deep and consistent is the role of big banks in U.S. policymaking?

Throughout the century that I examined, which began with the Panic of 1907 … what I found by accessing the archives of each president is that through many events and periods, particular bankers were in constant communication [with the White House] — not just about financial and economic policy, and by extension trade policy, but also about aspects of World War I, or World War II, or the Cold War, in terms of the expansion that America was undergoing as a superpower in the world, politically, buoyed by the financial expansion of the banking community.

And in what direction did that move policy? How did those policies become different than they would have without the bankers’ influence?

It was more a question of each group, in government and in the financial community, working together to push the same policies. So, for example, in the beginning of World War I, Woodrow Wilson had adopted initially a policy of neutrality. But the Morgan Bank, which was the most powerful bank at the time, and which wound up funding over 75% of the financing for the allied forces during World War I … pushed Wilson out of neutrality sooner than he might have done, because of their desire to be involved on one side of the war.

Now, on the other side of that war, for example, was the National City Bank, which, though they worked with Morgan in financing the French and the British, they also didn’t have a problem working with financing some things on the German side, as did Chase … When Eisenhower became president … the U.S. was undergoing this expansion by providing, under his doctrine, military aid and support to countries [under] the so-called threat of being taken over by communism … What bankers did was they opened up hubs, in areas such as Cuba, in areas such as Beirut and Lebanon, where the U.S. also wanted to gain a stronghold in their Cold War fight against the Soviet Union. And so the juxtaposition of finance and foreign policy were very much aligned.

Read more …

My Twitter pen-pal and Automatic Earth devotee Jesse Colombo has made it to the pages of Forbes, where he wrote an assessment of New Zealand’s economy that wasn’t particularly likes, but got a lot of media.

12 Reasons Why New Zealand’s Economic Bubble Will End In Disaster (Colombo)

New Zealand’s economy has been hailed as one of world’s top safe-haven economies in recent years after it emerged from Global Financial Crisis relatively unscathed. Unfortunately, my research has found that many of today’s so-called safe-havens (such as Singapore) are experiencing economic bubbles that are strikingly similar to those that led to the financial crisis in the first place. [..] Here are the reasons why I believe that New Zealand’s economy is heading for a crisis:

1) Interest rates have been at all-time lows for almost a half-decade
2) Property prices have doubled since 2004
3) New Zealand has the world’s third most overvalued property market
4) New Zealand’s mortgage bubble grew by 165% since 2002
5) Nearly half of mortgages have floating interest rates
6) Mortgages account for 60% of banks’ loan portfolios
7) Finance, not agriculture, is New Zealand’s largest industry
8) New Zealand’s banks are exposed to Australia’s bubble
9) Australian and Chinese buyers are inflating the property bubble
10) New Zealand has a household debt problem
11) Government overseas debt has nearly tripled since 2008
12) The New Zealand dollar is overvalued

Read more …

And Jesse even had the government react.

It’s Not A Bubble Until It’s Officially Denied, New Zealand Edition (Colombo)

What an Easter weekend it’s been. On Thursday, I published a piece called “12 Reasons Why New Zealand’s Economic Bubble Will End In Disaster” in which I summarized my research on the Pacific island’s growing property and credit bubble. In just a few days, this article went viral and received over 85,000 views and nearly 8,000 shares on social media. This bubble warning created a media firestorm, making numerous news headlines, landed me a prime time appearance on TVNZ, and made the cover story of The Herald on Sunday.

My bubble warning also led to something that I’ve become quite familiar with lately: an official denial from Economic Development Minister Steven Joyce. This makes the fourth official bubble denial I’ve experienced in the past several months, with the first three coming from officials in Malaysia, the Philippines, and Singapore.

After having experienced official bubble denials before, I have stopped taking them seriously because I now realize that they are simply standard responses that add little intellectual substance to the discussion. While I bring facts and statistics to the table, the official bubble deniers typically attempt to attack my credibility and write me off as a “doom and gloomer.” In response to my warnings about credit and property prices doubling or tripling in just a decade, I receive pat answers such as “our banks have prudent lending standards” and “property prices are rising because of a shortage” (after all, it’s always a “shortage” – never a bubble). It doesn’t matter what country I’m warning about, the official bubble denials are essentially the same.

Read more …

Lovely.

US Court Denies Attorney-Client Privilege (Simon Black)

In the Land of the Free, people grow up hearing a lot of things about their freedom. You’re told that you live in the freest country on the planet. You’re told that other nations ‘hate you’ for your freedom. And you’re told that you have the most open and fair justice system in the world. This justice system is supposedly founded on bedrock principles– things like a defendant being presumed innocent until proven guilty. The right to due process and an impartial hearing. The right to counsel and attorney-client privilege. Yet each of these core pillars has been systematically dismantled over the years:

1. So that it can operate with impunity outside of the law, the federal government has set up its own secret FISA courts to rubber stamp NSA surveillance. According to data obtained by the Electronic Privacy Information Center, of the nearly 34,000 surveillance requests made to FISA courts in the last 35-years, only ELEVEN have been rejected. Unsurprising given that FISA courts only hear the case from the government’s perspective. It is literally a one-sided argument in FISA courts. Hardly an impartial hearing, no?

2. The concept of ‘innocent until proven guilty’ may officially exist in courts, but administratively it was thrown out long ago. These days there are hundreds of local, state, and federal agencies that can confiscate your assets, levy your bank account, and freeze you out of your life’s savings. None of this requires a court order. By the time a case goes to court, you have been deprived of the resources you need to defend yourself. You might technically be presumed innocent, but you have been treated and punished like a criminal from day one.

3. Attorney-Client privilege is a long-standing legal concept which ensures that communication between an attorney and his/her client is completely private. In Upjohn vs. the United States, the Supreme Court itself upheld attorney-client privilege as necessary “to encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law. . .” It doesn’t matter what you’re accused of – theft, treason, triple homicide. With very limited exceptions, an attorney cannot be compelled to testify against a client, nor can their communications be subpoenaed for evidence.

Yet in a United States Tax Court decision announced on Wednesday, the court dismissed attorney client privilege, stating that: “When a person puts into issue his subjective intent in deciding how to comply with the law, he may forfeit the privilege afforded attorney-client communications.” In other words, if a person works with legal counsel within the confines of the tax code to legitimately minimize the amount of taxes owed, that communication is no longer protected by attorney-client privilege. Furthermore, the ruling states that if the individuals do not submit attorney-client documentation as required, then the court would prohibit them from introducing any evidence to demonstrate their innocence.

Read more …

All we need to see from here is polluted Chinese fire, and we’ll have all 4 basic elements corrupted for 1.3 billion people.

China’s Water Is Worse Than Its Air (Bloomberg)

In recent months, Chinese leaders have pledged drastic steps to clear their nation’s smog-choked air. The bigger question, though, may be how far they’re willing to go to clean up its water. Say one thing for the lung-burning pollution that regularly blankets Beijing and other cities: At least everyone can see the problem. In contrast, a recent benzene spill that poisoned the water supply of Lanzhou – a city of more than 2 million people – was terrifyingly odorless and colorless. If anything, polluted water poses a more insidious threat to Chinese people than dirty air does. 70% of the groundwater in the heavily populated north China plain has become unfit for human touch, let alone drinking or irrigation. Because the area encompasses several of the country’s largest farming provinces, crops and livestock are exposed to dangerous contaminants as well. The 9 in 10 Chinese who say they’re “highly concerned” about the safety of their food and water have reason to be alarmed.

Authorities have shown they can restore blue skies, at least temporarily, as they did during the 2008 Beijing Olympics. Cleaning up China’s water will be more difficult, time-consuming and expensive. Industries that pollute water are not concentrated in a few places, as coal-fired power plants are, but spread out across thousands of localities. And dirty water is harder to assess than gritty air; discharges have to be measured near the source. In any case, industry accounts for only half of water pollution. The rest comes from millions of small farmers and livestock producers, whose fertilizers, pesticides and waste runoff leach undetected into the water table.

The sheer scale of the problem demands root-and-branch reforms — the kind that Chinese academics and activists have long promoted but the government has been reluctant to make. A new environmental law, for instance, may include tougher penalties: Violators who ordinarily pay cheap fines and then continue to pollute would be subject to daily, unlimited penalties and possible criminal charges. But this law is in its fourth draft and still undergoing revisions, and there’s no guarantee the stronger penalties will survive to the final version.

Even if they do, they will be of little use unless China’s Ministry of Environmental Protection is given greater power. As things stand, so many agencies have a say in environmental oversight, it’s almost impossible to take strong, swift action. Groundwater monitoring alone is overseen by three different ministries, as China Water Risk, a nonprofit watchdog based in Hong Kong, points out, and this makes enforcement slow and ineffective. Talk of merging ministries or responsibilities into the MEP has so far gone nowhere.

Read more …

Street cams are so ubiquitous in the UK, nobody really thinks much about them anymore.

Vast Network Of Street Cams Pose ‘Very Real Risk’ To Britons’ Privacy (Independent)

Members of the public face “a very real risk” to their privacy from the huge roadside surveillance network that captures millions of motorists every day, the Government’s Surveillance Commissioner has warned. In an interview with The Independent, Tony Porter urges that clear guidance be provided to ensure “innocent” people do not fall victim to roadside automatic number plate recognition (ANPR) cameras which have been the centre of concerns over the rise of surveillance in Britain. The regulator for Britain’s state-run security cameras has put police on notice over their use of personal data after a series of investigations into the ANPR system, which has been described by campaigners as the “biggest surveillance network that most people have never heard of”.

The use of the system is part of wider concerns over a growing “surveillance society” as Mr Porter revealed how cheap home CCTV cameras have led to a surge in snooping disputes between neighbours. Local authorities control more than 50,000 cameras while thousands of roadside cameras collect owner information on more than 18 million car journeys every day, in a swift and unregulated expansion over the past 30 years. Police have declined to say how many cameras are used for the ANPR system, but it has the capacity to check information on up to 50 million cars every day, and cross-check it with other police databases to trace wanted offenders.

Read more …

Home Forums Debt Rattle Apr 21 2014: The Twilight Of The Rising Sun

This topic contains 4 replies, has 5 voices, and was last updated by  chettt 4 years, 9 months ago.

Viewing 5 posts - 1 through 5 (of 5 total)
  • Author
    Posts
  • #12441

    Detroit Publishing Co. Nightfall on the Ohio River at Cincinnati 1910 US President Barack Obama begins a three-day visit to Japan on Wednesday. As for
    [See the full post at: Debt Rattle Apr 21 2014: The Twilight Of The Rising Sun]

    #12444

    steve from virginia
    Participant

    Enough with the David Stockman and Zero Hedge, already.

    Stockman is a crank who gets the history and the economics wrong, everything out of his mouth is creepy, self-serving, self-justifying drivel; his articles are like something written by Albert Speer.

    Zero Hedge rants are also self-serving, stupid and flat out wrong. it’s bad enough to continually see Russia Today propaganda over here; Keiser is at least entertaining.

    Thank you.

    #12445

    John Day
    Participant

    Hi Ilargi and Stoneleigh,

    I’m personally fine with Stockman, Zero Hedge, Keiser, Yves Smith, Simon Black, Charles Hugh Smith, and a host of others.
    I sure do appreciate the vast screening which you must do to present so many good articles and essays.

    #12446

    Raleigh
    Participant

    steve from virginia – then who do you think best represents what has happened? Post a link or two of articles you like (as long as it’s not Krugman).

    I think Stockman is another voice pulling back the curtain on the fraud and lies we are being told. He may not be correct on everything (who is?), but I sure wish we had more people like him speaking up. We are not getting the truth from the media.

    Post a link to an article you really admire. Ilargi and Nicole, I think you’re doing a superb job!

    #12460

    chettt
    Participant

    For me the surprise from Japan is the complete buffoonary being displayed in the reaction to the Fukushima accident. My impression of the Japanese prowess in science and technology was set in the late 80s when the country seemed unstoppable. I was absolutely sure that by this time a new breed of industrial robots would have completely contained the multitude of problems and would now be scouring every square inch of soil collecting all remaining contaminated. Boy did I miss that call.
    I guess 25 years of depression can really take a toll on a nations phyche. There are just too many issues going on in Japan to hope for a soft outcome. A significant cultural revolution now seem inevitable.

Viewing 5 posts - 1 through 5 (of 5 total)

You must be logged in to reply to this topic.