Jul 232014
 
 July 23, 2014  Posted by at 8:28 pm Finance Tagged with: , , ,


Arthur Rothstein Home of worker in strip coal mine, Cherokee County, Kansas May 1936

A very impressive procession of hearses, containing the first 40 of the 298 caskets that will have to be ‘processed’, is going on as I speak in Holland, and has been for hours of slow driving, broadcast on live national TV. It’s a 100 mile or so distance, with thousands upon thousands of people along the route paying respect, from the airport where they landed form Ukraine to the facilities where they’ll be identified.

Which in the most ‘fortunate’ cases can be done in hours, in others may take weeks, and in yet others may never be conclusive. At least on the surface, the Dutch are doing everything right when it comes to honoring and respecting the people who died on MH17, and those who mourn them.

Still, when the bodies left Charkov earlier today, there were speeches by the Dutch and Australian ambassadors and other officials, all entirely in the spirit of what the moment and the victims deserve and are entitled to, but there was one noteworthy dissonant, which was even picked up by a Dutch reporter who wasn’t there to give his own opinion, but nevertheless opined that he thought it was very out of line for Ukraine Vice PM Groysman to use the occasion, which was intended to honor the victims only, to once again start off on a bitter, and frankly shameless, rant against Russia and Putin.

Ugly. But not unexpected. It goes to show that we really no longer know who our friends are. And as I said the other day, that goes for the whole Russia and Ukraine situation as much as it goes for the economy and the crisis it’s in. There are far too many Americans and Europeans who still think their governments are their friends. Which in Holland today is very tempting, because there’s this whole display of ‘correct mourning’ going on that draws in just about everyone simply on the fact that emotions must go somewhere, and they are easily guided into a shared platform, because people are drawn to that.

But they are, in the slipstream of those shared emotions, just as easily drawn towards venting anger at a perceived common enemy; it is easy to manipulate – emotionally vulnerable – people’s genuine grief into a blame game directed at a common enemy, even if you have no evidence that enemy did anything wrong, or even had anything to do with the acts that made them your enemy in the first place.

This is not something we had to wait for Sigmund Freud to discover for us; people have known since they were much more primitive primates how this works. Group – or mass- psychology works like a charm if you press the right buttons in a group. And it may have had benefits in the days of David vs Goliath, where a seemingly weaker party won the day against a stronger one. But it also has a dark side. When people are vulnerable, you can make them believe just about anything.

“We” follow the side that’s been pre-chosen for us in the ongoing Ukraine battle by our governments, i.e. US and EU. Who started getting heavily involved in Ukraine a number of years ago, and began to put the pedal to the metal when then-President Yakunovych declined to sign a deal that would have delivered Ukraine into a perhaps not all that advantageous partnership with the EU.

That’s when the West joined the Maidan protest in an aggressive way. By then, though, it had already spent a princely sum of $5 billion supporting all sorts of movements that had one thing in common: they were against Russia. Or more specifically: against Putin. Who refused to kowtow to Brussels and Washington.

With the help of a number of not-so-squeaky-clean groups in Ukraine, the Maidan side won: the elected president fled. US-handpicked guys – dare we say puppets – took over, and launched ferocious attacks against those amongst their own compatriots in the east of the country who didn’t want to bow to American and European rule, if only because it was announced very transparently by the new rulers in Kiev that they would be considered second hand citizens, if they would be allowed to live.

The eastern, Russian-speaking population, chose to align with Russia. A choice that so far cost many thousands of them their lives. Killed by their own government’s army, aided by US secret service agents and mercenaries, on their very own land they, and their ancestors, grew up on.

Blaming Putin for what has happened, not just to MH17 but to anything and everything in Ukraine over the past year and change, is way too easy. Putin, or let’s say Russia, has not been the aggressor, the west, i.e. have. Putin was fine with the way things were before. He thought Yanukovych was a stupid clown, but at least his oil interests were safe with that clown.

He acted just like the US and EU did and do to this day in 100+ different countries: as long as the prevailing government do what you want, you leave them in place. In Yanukovych’s case, it was gathering insane riches and bankrupting his nation, but at least never renditioning or mass murder. In many countries “we” support, wholesale slaughter is the order of the day, and has been for many decades. Whether it’s Saudi Arabia or Iraq or Chili or the Congo, we have built our wealth of supporting regimes that are willing to kill their neighbors so our interests are served.

It’s completely senseless to even try and deny that. But we are still led, in our justified grief and anger, towards hate for the very people we have set up to being killed by armies we ourselves finance. Call them devils, call them terrorists, proclaim they have no souls or they eat firstborn children. It’s as old as the first primates. It’s politics.

But it’s also the epitomy of disrespect. For those of you who have died, and who deserve for you to put in your best effort to find out who killed them. Not point fingers and not deliver any evidence. And disrespect for those who are being killed on your name – yes, that would be you -, so a political power game can be played over your heads and theirs. And down the line, your kids can be sent to go and murder the kids of those who were never your enemy other than in your politicians’ chants and games.

Your politicians are not your friends. But they are very good at pretending they are, especially in circumstances where you are – and they always know when that is – most vulnerable. The fact that all you’ve heard and read so far, a week after MH17 came down, is insinuations, and not a single shred of proof, should tell you all you need to know as far as your leaders’ credibility is concerned. They have nothing.

The most damning, or should I really say most entertaining, showcase is that is this conversation between Associated Press reporter Matt Lee and US State Department Deputy Spokesperson Marie Harf. What Harf is saying, for the good listener, is that the entire State Department assessment of the MH17 situation is based on social media posts from the Ukraine government.

Which just happens to have issued more lies and fabricated videos and and and than anyone else involved. BUK rocket movements Kiev said were ‘rebel rockets’, but which proved to be on Kiev controlled territory, black boxes they said were tampered with that were not, etc etc. Not one thing I can think of Kiev said has proven to be true. But they’re our governments’ installed puppets, so we listen to them.

If there’s no other way to find out who your friends are, at least this conversation should make it abundantly obvious to you who is not. Marie Harf may have lost her job on this, but she still said it. This is the kind of thing I find hard to believe when I see it, but I think maybe most people fail to see what’s actually being said. Then again, in an emotionally laden environment, it’s perhaps easy to miss out on essentials.

My uncle’s at the evenin’ table, makes his living runnin’ hot cars
Slips me a hundred dollar bill, says
“Charlie you best remember who your friends are.”

Straight Time, Springsteen

Yeah, that’s it, keep Russia alive …

Economic Meltdown Scenario Piles Pressure On Russia And The West (Guardian)

Oil prices above $200 a barrel. Energy shortages in western Europe. The return of recession to the still-fragile global economy. A slump in Russia. That’s the fear haunting policymakers as they contemplate how to respond to the shooting down of MH17 over eastern Ukraine last week. The meltdown scenario can be easily sketched out. Every global downturn since 1973 has been associated with a sharp rise in the price of energy. Russia is one of the world’s biggest energy suppliers and is responsible for about one-third of Europe’s gas. America’s economic recovery from the deep recession of 2008-09 has been weak by historic standards, while the European Union’s has barely got going. [..]

Given the public outrage at the loss of life on MH17 some increase in the severity of the sanctions looks inevitable. In Brusselson Tuesday, there was talk of imposing restrictions on capital movements from Russia and of curbs on exports of defence and energy technology. These measures would certainly increase the pain for Russia, and would run the risk that Putin would retaliate by choking off oil and gas exports to the west, looking instead to energy-hungry China as an alternative market. Slater estimates that UK growth next year would be 1% lower than expected were Russia to halt gas supplies through Ukraine, with the impact felt through higher energy prices, higher inflation, falling share prices and weaker consumer confidence. Closing the gas taps could then trigger the “phase three sanctions” being resisted by many EU countries, including Germany, France and Italy.

These would target entire sectors of the Russian economy, blocking their exports to the west and preventing them doing business with companies in the European Union and North America. It is this prospect that has prompted fears of rapidly rising oil prices. Slater calculates that Russian energy exports to the rest of the world could be cut by as much as 80%, with less than half the shortfall made up by the Opec oil cartel. “In such a scenario, world oil prices could soar above $200 per barrel and gas prices would also rise steeply.” Julian Jessop at Capital Economics notes that the biggest losers from this would be Russia, already in recession. Other suppliers would have an incentive to keep prices low in order to grab Russia’s energy customers. The west could draw down on strategic oil supplies to limit the impact of the loss of Russian supply.

Read more …

There are no markets left, just an artificial look-alike.

Why The Markets Don’t Care What Happens In The World (MarketWatch)

A plane carrying close on 300 innocent people gets shot down along one of the most sensitive borders in the world. Israel invades Gaza, reigniting the deepest wounds in the Middle East, and potentially sparking another regional conflict. A few hundred miles away, a militant insurgency threatens to turn Iraq into a full-blown terrorist state. The world has not been short of things to worry about in the last week, or the news bulletins short on drama and conflict. But how did the financial markets react? A few stocks got marked down, and gold made one of its reflex moves upwards. Yet on the whole, they barely registered any reaction. It was as if nothing of significance had happened. There is a message in that, and an interesting one. The markets are no longer interested in what happens in the rest of the world. The days when geopolitics could impact the prices of stocks, bonds, commodities or currencies in any significant way have been consigned to the past.

There are two possible explanations for that: firstly that there are not any wars or revolutions any more that can dramatically change the outlook for the global economy; and secondly, that the markets are so pumped up by quantitative easing, and easy money from the central banks, that anything else that happens pales into triviality by comparison. The truth is probably somewhere in between. Either way, investors can safely ignore war and politics from now on when they are structuring their portfolio. The declining interest of the financial markets in what is happening around the world has been evident for some time. The Arab Spring that saw governments fall across the Middle East was probably the last set of uprisings to make any real impact, but even that was largely restricted to frontier indexes such as Egypt, and they don’t count for a great deal in the greater scheme of things. But it has been most noticeable this year. It is not as if the past few months have been short on drama.

The Russian annexation of Crimea, and possible capture of eastern Ukraine, marks the first major re-drawing of national orders within Europe in many years. It could easily turn into the beginning of a new period of conflict between Russia and Western Europe — the opening salvos of a new Cold War. Likewise the militant uprising in Iraq could easily result in the creation of a terrorist Islamic state in a country with some of the largest oil reserves in the world, and which only 10 years ago the U.S. considered so strategically important it invaded to bring down what it regarded as a rogue regime.

Tension between the Israelis and the Palestinians is hardly anything new: the invasion of Gaza is merely the latest in a long and bitter history of conflict. Even so, it remains one of the most disputed regions in the world, and one where any military action threatens a wider conflagration. Not so long ago, geopolitical events such as those would have provoked wild swings in the financial markets. After the 9/11 attacks on Washington and New York, the stock market fell dramatically. The Iraqi invasion of Kuwait sparked a wave of selling, and the Middle Eastern conflicts of the 1970s sent the oil price soaring and the stock market crashing.

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State Dept. MH17 Assessment Based on Kiev Social Media Propaganda (RT)

State Department Deputy Spokesperson Marie Harf described Russia’s statements on MH17 plane crash as “misinformation” – but when reporters asked her whether Washington would be releasing their intelligence and satellite data, Harf only replied “may be.” So far the US has been backing its statements by social media and “common sense.”

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Yeah, Putin really fears US courts ….

Putin’s Ukraine Woes Compounded by $103 Billion Yukos Claim (Bloomberg)

Russia will discover next week how much it may be asked to pay for the confiscation a decade ago of Mikhail Khodorkovsky’s Yukos Oil Co., then the country’s biggest oil producer. The Permanent Court of Arbitration in The Hague will rule on July 28 on a $103 billion damages claim the company’s former owners filed against Russia in 2007, Tim Osborne, head of GML Ltd., former holding company of Yukos, said by e-mail. Court official Willemijn van Banning said by phone she couldn’t comment on the date for the ruling. The potential multibillion-dollar punitive award comes as Russian President Vladimir Putin risks further U.S. and European sanctions after the downing of a Malaysian passenger jet in eastern Ukraine that killed 298 passengers and crew. The Obama administration has blamed the plane’s downing on pro-Russian rebels, who deny any involvement.

A substantial award of damages “would add to Putin’s sense of being backed into a corner and that the West is out to get Russia,” Masha Lipman, an independent political analyst based in Moscow, said by phone. “Whether a coincidence or not, it will be seen as more than a coincidence.” GML has a good chance of winning partial damages, according to Gus Van Harten, a professor specializing in arbitration at York University’s Osgoode Hall Law School in Canada. There’s “very limited room” for appeal and Russia will resist paying, so any amount awarded would trigger a global legal battle to seize state property, including assets of OAO Rosneft, which acquired most of Yukos in a series of forced auctions, Van Harten said. Putin has said his opponents are using the crash for “selfish political gains.” The EU warned yesterday that it may restrict the country’s access to capital markets and sensitive energy and defense technologies.

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Super dollar.

Jobs Hold Sway Over Yellen-Carney as Central Banks Set To Split (Bloomberg)

Before the Federal Reserve and fellow central banks go to work raising interest rates, they first need others to go to work. That’s the signal from policy makers worldwide, as even those whose mandates focus on inflation put the health of labor markets at the heart of their decision making. The approach leaves investors bracing for global monetary policies to diverge after the post-crisis embrace of easy money. Accelerating job creation — and the hope this will spur wages — leaves the U.S. central bank and the Bank of England preparing for higher rates by the end of 2015. At the other end of the spectrum, double-digit unemployment in the euro area and stagnant pay in Japan mean stimulus remains the only option.

“Strength in the labor market is a key factor in the change in thinking about when the first rate hikes may occur,” said Nariman Behravesh, chief economist in Lexington, Massachusetts, for IHS Inc. “There’s a huge differentiation in performance now. The frontrunners are speeding up.” Investors are starting to tune in to the end of synchronized monetary policy, with economists at Goldman Sachs Group Inc. saying shifts in hiring during the past eight months worked well as a simple predictor of rate expectations. The forward curves for the U.S. and U.K., which gauge investor expectations for rates, show the most-pronounced steepening as unemployment in both countries has fallen to the lowest levels in more than five years. By contrast, the euro-area’s 11.6% jobless rate remains close to a record 12% as investors bet its benchmark will stay low until at least 2016.

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Oh, exciting!

Draghi Faces German Hard Line on Avoiding Deflation (Bloomberg)

The deutsche mark is dead. Long live the deutsche mark. That’s the view from Germany’s central bank, which is resisting a weaker euro, introduced in 1999, and opposing the most aggressive strategies Mario Draghi could deploy to ignite growth in Europe, says Simon Derrick, chief market strategist at Bank of New York Mellon Corp. Derrick sees parallels with the early 1990s when Germany refused to surrender its hard money dogma even as it transmitted pain elsewhere. The 18-member euro area’s emergence from a two-year recession is proving sluggish, with inflation about a quarter of the ECB target and unemployment above 20% in Spain and Greece. Back in 1992, the U.K. was under German pressure to live with the high interest rates demanded by the Exchange Rate Mechanism, a slipway to the single currency, even if it punished the British economy.

In the end – and under fire from billionaire investor George Soros – the U.K. buckled. It allowed sterling to slump and interest rates to decline, paving the way for a 15-year expansion. In 1993, with France in recession, the Bundesbank was unwilling to accelerate rate cuts for fear that would harm the deutsche mark. By July, the need for a weaker franc persuaded meant Europe’s leaders to allow their currencies to trade more flexibly as they sought to keep the euro project alive. Fast forward to today: Germany’s intransigence is again in play as Draghi, the Italian president of the European Central Bank, mulls whether to enact quantitative easing to prevent deflation. He has cut interest rates to record lows and pledged fresh loans for banks last month to little effect so far.

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Super dollar!

China’s Terrifying Debt Ratios Poised To Breeze Past US Levels (AEP)

The China-US sorpasso is looming. I do not mean the much-exaggerated moment when China’s GDP will overtake America’s GDP – which may not happen in the lifetime of anybody reading this blog post – as China slows to more pedestrian growth rates (an objective of premier Li Keqiang.) The sorpasso may instead be the ominous moment when China’s debt ratios overtake the arch-debtor itself. I had presumed that this inflection point was still a very long way off, but a new report from Stephen Green at Standard Chartered argues that China’s aggregate debt level has reached 251% of GDP, as of June. This is up 20%age points of GDP since late 2013. The total is much higher than normal estimates, though it tallies with what I have heard privately from officials at the IMF and the BIS.

Mr Green – a highly-respected China veteran – includes total social financing (TSF), offshore cross-border bank borrowing (a story that we are going to hear a lot about), bond issuance, shadow banking of various kinds, and government debt. The ratio has risen by 100%age points of GDP over the last five years. As Fitch has argued out in the past, this is more than double the rise seen in Japan over the five years before the Nikkei bubble burst in 1990, or in the US before subprime blew up in 2007, or in Korea before the Asian financial crisis. It is the speed of the rise that worries credit rating agencies and regulators – including many at the Chinese central bank – as much as the volume itself. Though China is scary on both fronts. It has pushed debt to $26 trillion, more than the entire commercial banking systems of the US and Japan combined. The scale obviously has global ramifications. The FT’s Jamil Anderlini points out here that the figure is very high for an emerging economy.

Mature economies can handle a higher debt ratio for all kinds of reasons, not least because they have large assets to offset their liabilities. British figures of household debt look much more threatening than they really are because the debt is mostly for mortgages, and is balanced by high levels of equity and wealth. Total debt levels in the US are 260pc (if you assume that the Fed will never unwind QE, which I do). So unless the Politburo gets a grip very fast, and this too would be dangerous, it may catch the US by next year. This does not mean that China is about to crash. It has a state-controlled banking system. Therefore any bust scenario will play out in a different way, probably through much lower growth and two decades of Japanese-style extend and pretend. As the BIS implied in its annual report: almost the entire world has now been drawn into the Ponzi scheme of unsustainable debt. We can inflate some of it away, or we can deflate into defaults and creditor haircuts. Pick your poison.

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This is going so wrong…

China May Avoid Second Bond Default, Thanks To Bailout (MarketWatch)

China may avoid its second-ever corporate bond default due to a bailout by a local government, Chinese media said Tuesday. Huatong Road & Bridge Group, a privately held construction firm, said in a statement last week that it was uncertain whether it could pay the principal and interest on a 400-million-yuan ($64 million), 1-year bond when it reaches maturity on Wednesday. According to a 21st Century Business Herald report, the company had sent several tranches of funds “one after another” to the Shanghai Clearing House in order to cover the bond payment, but it was still short of the amount needed. However, the newspaper quoted an unamed source as saying that there was “no big problem” of a possible default, as the Shanxi provincial government appeared to have stepped in to coordinate the collection of company’s accounts receivable from local governments.

A possible default could harm concurrent efforts by the Shanxi government to convince the central bank to allow state-owned banks more lines of credit for investment projects in the province, the report quoted an expert as saying. Huatong Road & Bridge had cited the fact that its chairman, Wang Guorui, was under investigation in disclosing its financial troubles, according to the 21st Century Business Herald report. And while the company didn’t elaborate, the newspaper said Wang had been accused of illegal coal-mining activities. In March, Shanghai Chaori Solar Energy Science & Technology said it failed to make a full interest payment on a corporate bond it had issued, becoming the first onshore bond to default in China’s history.

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Well, that’s surprise.

China’s Net Forex Sales Suggests Capital Outflows (MarketWatch)

China’s central bank and financial institutions sold a net 88.28 billion yuan ($14.2 billion) of foreign currency in June, compared with a net purchase of 38.657 billion yuan in May, according to calculations by Dow Jones from central bank data. June is the first month of net sales after ten months of net purchases, suggesting capital started to flow out of China. The banking system’s foreign-currency purchase position totaled 29.45 trillion yuan at the end of June–lower than 29.54 trillion yuan at the end of May, People’s Bank of China data showed. The data include purchases and sales by commercial banks and other financial institutions but mostly reflect transactions by the central bank. Most analysts view the figures as a proxy for inflows and outflows of foreign capital as most foreign currency entering the country is generally sold to the central bank.

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Did you notice?

Everything In Your House Is Getting Cheaper To Buy (MarketWatch)

Maybe you haven’t noticed, but it’s a great time to buy all the things you need to fill up your house: Furniture, appliances, electronics, dishes and pots and pans. People tend to pay attention to the prices of things they buy all the time, like gasoline, milk and meat. But who can remember what it cost them the last time they bought a washing machine? Fortunately, the Bureau of Labor Statistics does keep track. The BLS reported Tuesday that prices of consumer durable goods have fallen 1.5% in the past year, the steepest decline since the depths of the recession in 2009. This isn’t a new trend: The prices of durable goods have been falling pretty steadily since peaking in 1997, and now they are as cheap as they were in 1988, after adjusting for the constant improvements manufacturers have been making to their products. What’s striking is how pervasive the price declines are. It’s not just a few items that are pulling down the average; prices are falling for almost every sort of durable good that consumers buy.

Here are the latest numbers from the BLS: Prices of major appliances are down 7.9% in the past year, the largest decline on record. Laundry-equipment prices are down 8.6%. Furniture and bedding prices are down 2.5% in the past year. Window coverings, rugs and other linens are down 2.1%. Clocks and lamps are down 6.9%. TVs are down 15%. Audio-equipment prices are down 2.4%. Telephone-equipment prices are down 7.7%. Camera prices are down 6.7%. Dishes and flatware are down 6.3%. Cookware prices are down 4.7%. Computers are down 6.3%. Tools and other hardware prices are down 1.5%. Toys are down 6.5%. Sporting goods are down 1.3%. Jewelry prices are down 4.5%. Medical equipment prices are down 1.1%. New car prices are down 0.4%. Auto parts are down 1.2%.

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Yeah, but far too big to fail. $55 trillion in derivatives?!

Deutsche Bank Suffers From Litany of Reporting Problems (WSJ)

An examination by the Federal Reserve Bank of New York found that Deutsche Bank’s giant U.S. operations suffer from a litany of serious financial-reporting problems that the lender has known about for years but not fixed, according to documents reviewed by The Wall Street Journal. In a letter to Deutsche Bank executives in December, a senior official with the New York Fed wrote that reports produced by some of the bank’s U.S. arms “are of low quality, inaccurate and unreliable. The size and breadth of errors strongly suggest that the firm’s entire U.S. regulatory reporting structure requires wide-ranging remedial action.”

The criticism from the New York Fed represents a rebuke to one of the world’s biggest banks, and it comes at a time when federal regulators say they are increasingly focused on the health of overseas lenders with substantial U.S. operations. The Dec. 11 letter, excerpts of which were reviewed by the Journal, said Deutsche Bank had made “no progress” at fixing previously identified problems. It said examiners found “material errors and poor data integrity” in its U.S. entities’ public filings, which are used by regulators, economists and investors to evaluate its operations. The problems ranged from data-entry errors to not taking into account the value of collateral when assessing the riskiness of loans.

The shortcomings amount to a “systemic breakdown” and “expose the firm to significant operational risk and misstated regulatory reports,” said the letter from Daniel Muccia, a New York Fed senior vice president responsible for supervising Deutsche Bank. The New York Fed has various tools at its disposal to address shortcomings by banks it regulates. It can issue private letters demanding action, as it did with Deutsche Bank, or, in more severe cases, impose restrictions on banks’ activities. The letter, which hasn’t been previously reported, ordered senior Deutsche Bank executives to ensure steps were taken to fix the problems. It also said the bank might have to restate some of the financial data it has submitted to regulators.

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Krugman? Still have to talk about him?

Krugman’s Latest Debt Denial: His Magic Numbers Don’t Cut It (Stockman)

Professor Krugman is at it again—–conjuring fairy tales about a benign long-term fiscal outlook. Notwithstanding that the public debt has surged from 40% to 75% of GDP during the six short years since 2008, he claims there is no reason to fret and that there is no debt spiral anywhere in the future. In part that’s because the Keynesian priesthood has declared that interest rates have down-shifted on a permanent basis. CBO has therefore dutifully incorporated this assumption into its long-term projections:

This (interest rate) markdown has the effect of making the budget outlook — which was already a lot less dire than conventional wisdom has it — look even less dire. But there’s a further point worth emphasizing: the CBO has just declared an end to the debt spiral.

Even accepting CBO’s “rosy scenario” outlook (see below), it’s not evident that it has declared an end to the debt spiral. In fact, it projects publicly-held treasury debt to soar from $12 trillion today to about $52 trillion by 2039. Most people would judge that a spiral. Indeed, as shown in the CBO graph below based on “current policy”, the public debt ratio is heading sharply upwards to more than 100% of GDP.

So how does professor Krugman turn this dismal chart into an “all clear” reassurance–when it actually shows public debt heading to above WWII levels at a time when the baby boom is at peak retirement? Well, it seems that Krugman unearthed two numbers in a 182 page report that purportedly render harmless the $52 trillion of bonds, notes and bills that CBO projects will need to find a home at the historically low interest rates it forecasts for the next 25 years.

So we turn to Table A-1 on page 104 of the CBO report, and we learn that for the next 25 years CBO projects an average interest rate on federal debt of 4.1 percent and an average growth rate of nominal GDP of 4.3 percent. And this means no debt spiral at all.

A GDP growth rate higher than the average carry cost of the public debt sounds all good, but here’s the thing. Given outcomes during the 21st century to date, there is simply no plausible reason to believe that nominal GDP can grow at a 4.3% CAGR for the next 25 years. In fact, since the pre-crisis peak in early 2008, nominal GDP has grown at only a 2.5% CAGR, and even during the last two years when “escape velocity” was expected any day, the compound growth rate has been only 3.0%. Indeed, during the entire 14 years of this century—encompassing nearly two complete business cycles – nominal GDP has expanded at just 3.8% per annum. Needless to say, when you are crystal balling a quarter century ahead, CAGRs make a big difference, and that’s profoundly true of the Federal budget. Specifically, revenue is highly sensitive to nominal GDP growth because it is always money income, not real GDP, that is on the radar screen of the tax-man.

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Oh well, at least Québec doesn’t look like the moon yet.

Alberta Oil Clout Dominating Canada’s Unbalanced Economy (Bloomberg)

In Canada’s economy there’s Alberta, and there’s everywhere else. The oil- and gas-rich western province was responsible for all of the country’s net employment growth over the past 12 months, adding 81,800 jobs while the rest of Canada lost 9,500. Alberta’s trade surplus, C$7.4 billion ($6.9 billion) in May, almost matched the deficit rung up everywhere else. If growth trends over the past decade continue, Alberta would pass Quebec to become the country’s second-largest provincial economy in three years, according to data compiled by Bloomberg. “Alberta is already by far the strongest province economically, and higher oil prices will only exacerbate the regional split,” Benjamin Reitzes, a senior economist at BMO Capital Markets in Toronto, said in a telephone interview.

Alberta’s growing power is doing more than putting energy ahead of manufacturing exports such as Ontario’s cars and Quebec’s aircraft. It’s drawing tens of thousands of young people to the province, seeking energy jobs with some of the country’s highest salaries. It’s also posing a challenge to policy makers: Oil wealth has led to a stronger Canadian dollar, squeezing Ontario and Quebec manufacturers. Canada’s central bank is keeping interest rates near historic lows, looking for a weaker currency to boost exports. “We see a two-track economy,” Bank of Canada Governor Stephen Poloz said at a July 16 press conference after his decision to extend the longest interest-rate pause since the 1950s. Canada’s non-energy exports have disappointed, he said, holding back growth. At the same time, “energy exports have indeed been quite strong and we expect that to be a continuing trend.”

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Export Land.

OPEC’s Two-Decade Ride on Global Growth Stalls (Bloomberg)

For the past two decades, growth in the global economy spelled higher revenues for the Organization of Petroleum Exporting Countries. Not any more. The CHART OF THE DAY shows how last year was the first since 1993 that the value of OPEC’s total crude exports didn’t track the direction of global gross domestic product. The bottom panel shows how the group supplying about 40% of the world’s oil fetched lower average prices and also shipped fewer barrels year on year.

Production among OPEC’s 12 members fell 2.5% to average 31.6 million barrels a day last year, data from OPEC’s Annual Statistic Bulletin showed on July 18. Libya’s output slumped 31% amid political protests at oilfields and export terminals. Output from Iran, whose exports are subject to international sanctions, fell by 4.4%. The group’s members also consumed about 1% a day more domestically. “It’s three factors that have combined to give them, as they say, $100 billion less,” said Leo Drollas, an independent oil consultant in Athens and former chief economist at the Centre for Global Energy Studies. “The increase in the internal consumption, the slight fall in the price, and the fall in production in some members.”

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Home Forums Debt Rattle Jul 23 2014: Best Remember Who Your Friends Are

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    Arthur Rothstein Home of worker in strip coal mine, Cherokee County, Kansas May 1936 A very impressive procession of hearses, containing the first 40
    [See the full post at: Debt Rattle Jul 23 2014: Best Remember Who Your Friends Are]

    #14184

    rapier
    Participant

    Here in the US there is a bizarre dynamic where conservative political rhetoric which dominates all media, by volume, amount and decibels, hates the government but loves the nation. One inch past our borders and the government is only criticized for being too weak, too timid. Where there is literally no amount of violence we can unleash upon others that would be too much. No amount of our government meddling and intruding into other nations is too much. No amount of money spent meddling, intruding, inaviding other countries is too much.

    To wit recently they managed to cut $6bn from food stamps the next few years. A political victory met with almost orgasmic glee. Then we just sent $5bn to Ukraine and guaranteed another billion in their bonds, and not a peep was heard.

    It’s Europe that had better figure out who their friends are. Not that it makes much difference as in punishing or not punishing Putin because as Victoria Nuland said, “fuck the EU”. I’m thinking ‘we’ are willing to sacrifice Europe to the cold of massive NG shortages to try and get to Putin.

    Maybe not this year or next but soon enough.

    #14185

    Euan Mearns
    Participant

    Roel, I’ve been following your commentary on Russia – Ukraine and the ME and finding I agree with most of it. To be honest I don’t understand WTF is going on. I’m pretty sure that Putin is equally confused.

    The real issue here is why did Dutch authorities allow an aircraft to take off from Schiphol, laden with Dutch passengers, to fly over a war zone? British Airways and Quantas were already avoiding the area. IMO the culpability here really lies with those who sanctioned the route which I understand from reliable sources is Malaysian Airlines.

    The reporting of this tragic event here has been surreal. The Ukranian separatists seem to have done a reasonable job of gathering up bodies and body parts to send them home – recalling that they are fighting for their own lives against a larger force. The western media seems to expect some ridiculous standard to apply.

    Be warned that finding out who did this may rumble for decades. We still don’t know who downed Panam 103 over Lockerbie in 1988.

    I’m writing this while listening to the opening ceremony of The Commonwealth Games in the background. NUF said.

    Andy Murray was a pupil in the primary school in Dunblane on the day Thomas Hamilton struck in 1996 killing 16 children. Grieve and then move on.

    Obama? Spying on everyone. Too much data to process. Relying on cherry picked reports from his security services. He should get on a plane, fly to Moscow and talk to Putin… before its too late!

    #14186

    Nassim
    Participant

    “He should get on a plane, fly to Moscow and talk to Putin… before its too late!”
    Hear, hear!

    #14187

    Raleigh
    Participant

    Euan – “The real issue here is why did Dutch authorities allow an aircraft to take off from Schiphol, laden with Dutch passengers, to fly over a war zone?” Good question.

    “He should get on a plane, fly to Moscow and talk to Putin… before its too late!” I think “too late” is what he’s after. If Obama was after conciliation and friendliness, yes, but he doesn’t want that. He wants the oil and gas.

    Ever dealt with someone where you think their motive is genuine, you keep giving them the benefit of the doubt, and it takes quite awhile before you realize their motive is not one of mutual benefit, but a one-sided benefit in favor of them? I have. Of course, if it was someone you didn’t trust, you probably wouldn’t be surprised, but when it is someone you do trust (like the President of your country, a friend, a family member), it’s a hard pill to swallow. It takes some time before you allow the thought to sink in.

    I don’t think the U.S. wants the truth (which I’m sure they already know, anyway). They are and have been trying to stir up the hornet’s nest for some time now. If this doesn’t work, expect to see something more horrific in due time.

    They want something, and if it takes a fight to get it, that’s what will happen, lives be damned.

    #14189

    Nassim
    Participant

    “Minutes before the crash caused by a missile strike, the AI pilots had also heard the controller give the Malaysian aircraft MH17 what is called “a direct routing”. This permits an aircraft to fly straight, instead of tracking the regular route which is generally a zig-zag track that goes from one ground-based navigation aid or way point to another. “Direct routing saves fuel and time and is preferred by pilots. In this case, it proved fatal,” said an airline source. ”

    “Air India flight was 90 seconds away when missile struck Malaysia Airlines Flight MH17”

    https://timesofindia.indiatimes.com/india/Air-India-flight-was-90-seconds-away-when-missile-struck-Malaysia-Airlines-Flight-MH17/articleshow/38702536.cms

    It’s all coming out. Sadly, we have reached the stage where they don’t even bother doing the job “properly” – they know the media will trot out any explanation they like or simply make it all vanish from the front pages.

    Here is an example from today’s main paper in Melbourne. They make a big deal out of the allegation that the people picking up the bodies – a most horrible task – are keeping some mobile phones. The main story and the backpedalling has completely disappeared from the front pages!

    https://www.theage.com.au/world/mh17-looting-confirmed-victims-phones-answered-by-strangers-relatives-say-20140723-zw6uo.html

    #14190

    Professorlocknload
    Participant

    Excellent work, Ilargi!

    Want a government powerful enough to give you everything you want, including protection from any threat of harm? Then be prepared to give to it everything you have, including your life.

    Most folks simply do not understand the nature of concentrated power. With these psychos, all ends justify any means. 298 victims of their “means,” other than providing an opportunity for some political grandstanding, are of no more significance to them than were the lives of 6 million Jews, 3 million Ukrainians, massive civilian casualties in Dresden, Nagasaki or Hiroshima.

    They will gladly kill their own enablers as well. Rein in your governments and cut them down to such a minute size so as to be of no use to any special interest that would use them against you, or humanity in general.

    Or, keep asking for their protection, until they finally decide it’s best to simply destroy you to prevent others from harming you.

    Ask yourself, how many politicians did you see gathering up the pieces of flesh in the aftermath of their deeds there in that killing field in Ukraine? Even their pet media censored photos of the carnage, by the time western “Journalism” reprocessed information relating to the event, in order to make it more “palatable” for the “uninitiated.”

    Maybe bill board sized color glossy images of this sort of thing, posted on the streets, would be more useful in firing up constituencies. Is it even possible? Or are we still in the dark ages of the Vietnam War, where a simple body count meter became routine on the 6 O’Clock news every evening.

    No blood, no guts, no gore,,,just a little meter up in the corner of the TV screen. So on and on it went. 58,000 Americans and 1,000,000 Vietnamese all slaughtered in the shadow of a couple flags, all tucked behind an FCC regulated media firewall.

    “200 enemy killed today, and only 23 GI’s” they gloated. I guess that makes us the winner.

    #14191

    Diogenes Shrugged
    Participant

    My hat’s off to Ilargi for another superb essay. Not only am I in agreement, I’m wowed by the writing itself.

    A couple of lines in particular really resonated.

    “When people are vulnerable, you can make them believe just about anything.”

    I couldn’t help but think about some of the most vulnerable: kids. They become patriots in the country they’re raised in. They believe in the god their parents believe in. They learn to hate the people their parents hate. They adopt the worldviews and attitudes of those around themselves (including pop icons and celebrities). For a lot of kids, some of these conditionings turn out to be horribly misguided. Which can mean horribly self-righteous, selfish, insensitive, stupid, or even dangerous.

    This is important because misguided kids often become horribly misguided adults.

    “But we are still led, in our justified grief and anger, towards hate for the very people we have set up to being killed by armies we ourselves finance.”

    Well said, and the wicked irony of it causes me despair. The people who SHOULD read Ilargi’s essay will not, but what’s worse is that even if they did, it would not change their warped little minds.

    Eric Zuesse posted an excellent article today that also speaks to the madness behind the situation in Ukraine. I’m trying to get everyone I know to read both articles.

    https://www.washingtonsblog.com/2014/07/americas-nazi-allies-israel-ukraine.html

    #14193

    Professorlocknload
    Participant

    “People tend to pay attention to the prices of things they buy all the time, like gasoline, milk and meat.”

    Oh, yeah, I get it,,,a person is hungry because he’s out of money, except for that last cup of yogurt in the fridge, so he should concentrate more on the price of a new fridge. Makes sense, considering the source.

    #14194

    Professorlocknload
    Participant

    @ DS,

    Zuesse Conclusion,

    “Without accountability, there can only be dictatorship. America must now choose whether to restore its democracy, for we have certainly lost it.”

    Only one way that will happen. Nourishing the Tree of Liberty too will be ugly. But, as a double edged sword, one could believe, again, that the ends justify the means, maybe?

    I mention that because casting pre screened ballots is no longer effective. Just as casting ballots would not have freed the Colonists from the the clutches of England.

    On FDR and “Progressivism,” he progressed us right into war as a means of diverting attention from his bungling of the Great Depression. It’s just that the propaganda was so effective, he is considered a hero to this day. That, and the fact that right or wrong, the victors write the history.

    #14195

    Euan,

    Yeah, it’s a curious chain of events. Not sure it confuses Putin, though; he may well have expected something like this.

    The ECA (commercial airline pilots ass’n) issued a statement yesterday saying intelligence about missile systems had not been shared outside of US, UK, France, Canada, Oz (whose airlines fly other routes. Holland and Malaysia were never informed of recent developments. But even then … And then again, Ukraine air traffic control does play a role. But their tapes were confiscated by Ukraine intelligence and not heard – from – again since. It’s like the black boxes being sent to Britain, which is not exactly a neutral country.

    Obama won’t go talk to Putin, because he’s got him where he wanted: western public opinion is solidly anti-Putin, and they haven’t even had to provide any proof he did anything wrong.

    And the public have no idea what has been done in their name, so they feel no guilt whatsoever, but nevertheless all those thousands of dead east Ukrainians (and counting) really are directly linked to our support for Poroshenko, Yatsenyuk and the shady friends they keep.

    People in the west feel something bad is being done to them, and are ignorant of what’s being done to others on behalf of them. That’s our press for you.

    #14196

    Professorlocknload
    Participant

    Ilargi,

    I have a feeling Obama and Putin talk much more than we know.

    #14201

    Dr. Diablo
    Participant

    One thing’s for sure: both Putin and the US know exactly what happened. Which makes me wonder why neither will say. Russia’s cryptic press release was focused on the two fighter jets trailing MH17 when Ukraine swore nothing was in the air, even as the rebels say they were being air-attacked. Rumor has it that the fighter jets that downed MH17, as the Buk system is not a direct-impact weapon, but releases small, high-speed shrapnel in air proximity, shrapnel which is missing from the plane pieces we see on TV. If not hit by a Buk, but another weapon, what does this mean? NATO surface-air or air-to-air? Ukrainian MIG air-to-air? Add this: the two Ukranian fighters Russia obliquely referred to may not have been “Ukrainian”, per se, but NATO. So…NATO fighter clearly sees a civilian airliner, impossible to miss, and shoots it down? Add to, the US-Ukraine have the ONLY motive for ANY attack. Rebels have no high-air ability and no motive. Russia? Not their space, nothing was seen, no Buks were supplied, and have no motive. If this air fighter thesis up, it can only be in cold blood. Which considering Syrian gas incident supplied by UK-Saudi to the rebels, Benghazi, arming ISIS, and many more examples, wouldn’t surprise me at all. I mean, the US is killing their Vets by the thousands and arming the Zetas and ISIS to fight their own allies and soldiers. What’s a few hundred cheese-eaters in the mix? I mean, at this late date do we still have to discuss this? Why are we arguing water is wet?

    I disagree with the consensus: the drums to war have no traction whatsoever, as the media has no credibility whatsoever. If you read news, as we no doubt all do, the media might make it SEEM like a done deal, but I see nothing. Nothing. I don’t feel the people in the US even care (for better or worse) much less support such a thing; which is no surprise: they’re busy trying to prevent their own deaths at the hands of poverty, oppression, and inflation. And that’s no exaggeration. Go visit Cleveland, Detroit, Chicago, Indiana, Mississippi, or pretty much wherever you like outside of K-Street. You’re lucky to get food and water. Medical care that won’t actively kill you? Forget about it.

    So don’t despair. Far as I can tell there’s no traction, no rush to war. They ain’t got it. They’re hollow, useless, pathetic little sots and Putin’s going to let them fall in on themselves. Germany is pivoting to Russia and the Silk road without doubt, and Turkey just did yesterday, now utterly refusing phone calls from Obama. Turkey can import anything to Iran, shut down ISIS in a week, (they have the 8th largest military in the world, 3x France or the UK), combine with Iran (9th largest military) to take over all of central Asia, open or shut the Black Sea, pull Greece away from the Western vultures, and they own both the pipeline and the new natural gas fields off Cyprus. They’re gone. NATO is therefore gone. Europe is therefore gone. No one believes a thing the Anglos say, much less do anything they ask. Far from being to war, the move instead is the collapse and abandonment of the Anglos in favor of the non-insane. That’s the real unstoppable tide, not war. They’re going to have to do way better than this, and they don’t have it. It’s over.

    I’m not sure what it meant about “conservative rhetoric that is in all media.” It seems a stretch to say that the US media is a conservative mouthpiece. Quite the reverse. But if he means the Conservatives the media bothers to interview, it’s long been known that they’re not Conservatives any more than the Democrats are Progressive. Both parties have owned the entire government for years, and neither have done anything they promised, instead following the agenda we see every day, set up by the “Crazies in the Basement”, executed by Obama out-Bushing Bush, and back through decades of Clinton and H.W. maybe as far back as Johnson. Zero hope, zero change in what is 25 consecutive years. We’re still talking left-right? It’s been 25 years of the same, people, get up to speed before you get run over.

    For these crazies interviewed in the media, yes, nothing could be better with them than to make the helpless suffer, while there is no limit to welfare for billionaires or the budget and use of military equipment. When they ran out of fresh world to arm and bomb, they are now arming and targeting themselves, internally. However, it’s not news that the Republican Party is now dead and will probably vanish in a single event like the Whigs before Lincoln. The holdouts in Congress and other positions will notice that since they’ve been attacking the crap out of Christians, patriots, vets, whistleblowers, reporters, and Constitutionalists (as well as the middle class, the poor, and everybody else), the Conservative base is now anti-GOP. What remains is some new version of the Tea Party, as-yet-unnamed, which is serious about enforcing the hollow GOP rhetoric about smaller government, no foreign wars, upholding the Constitution, and privacy/social tolerance. As in “it’s none of the government’s business what people do or don’t do with their lives or bedrooms”. This is still being hashed out, but as far as I can tell on the ground, it’s a done deal. Whether that party will be rounded up and shot remains to be seen, but DHS is clearly arming for the possibility, and it’s far more serious issue than pleasant little skirmishes and live-burnings you see in the Ukraine. Last time there was a US Civil War, 10% of the nation died—that would be 30 million people or 8.5 million dead per year. Last time Americans got on the warpath, we nuked somebody for no good reason. Twice. Mind your P’s and Q’s at home. US civil unrest is as serious as a heart attack and just as fatal. And as is often cited and mocked, Americans are well-armed and not necessarily sensible.

    This fatal split between the people and the government is now pretty inescapable as the US sends $5B to Ukraine, $3B to Afghanistan, $3B to Israel, $1B each to Egypt, Iraq, Pakistan, and Jordan, $23,000 Billion to bankers, and ZERO to Detroit. ZERO to victims of the Gulf oil spill. ZERO to Birmingham. ZERO to vets. ZERO indictments. ZERO to defending Iraq after a $2,000 Billion cost of war. And ZERO to maintaining the border — one of the primary and only elements of BEING a sovereign country. I mean, I can’t illegally enter and live in Mexico, Canada…or Lithuania for that matter. They’d arrest and deport, if not shoot me. You can’t hide this level of cognitive dissonance from even the most tuned-out Americans. And unlike the media type, in reality Americans as a people like to joke, live their lives, and not get mad and take things too seriously. But that’s only because when at last they get mad and are forced to do something, history shows how ugly and serious will be. So we’re picked on for not being interested, ignoring our duty, being fat, stupid, clueless sheep. I argue the opposite. America is a violent country and we each know violence. Every American knows what will happen if they have to “get the belt and go up there.” Nobody wants that. But that doesn’t mean they don’t know what’s going on, what’s right, or that they will never move.

    Anyway, beware the phony and no-longer-relevant “Conservative” crazies on TV and don’t mistake them for the new conservative base that’s 95% split from the hollow, rotten party. Don’t mistake the synthetic drumming of war on paid billionaire media for any real support. There is none. They’re hollow, divorced from reality and irrelevant. The first stiff wind will blow them over. And the winds they are a’blowin’.

    #14205

    Glennda
    Participant

    As ever,Ilargi, you write the Real news. I really appreciate your dedication as well as your insight.

    Dr Diablo, – I agree with you. Maybe it’s living in the SF Bay area, but I also see no real acceptance of the lies of our govt. I don’t see our people ready for war. Our govt seems more intent on tying up Russian fossil fuel, so the price of ours will be worth more.

    People mostly listen to St. Snowden who tells us how much is spied on. What puzzles me is if “we” have so much surveillance of the world, then why can’t it be published about the terrible death flight. Don’t “we” have satellites to monitor almost everything?

    Most people seems to be hunkering down for a very hard future and are more interested in firming up local networks for mutual support, gardening, exercising, riding bikes etc. Or they’re just watching TV, playing on-line games or on social media or texting on phones. And of course, the homeless are still hauling the gleanings of trash cans.

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