Esther Bubley Greyhound garage, Pittsburgh, PA Sep 1943
Our Canadian friend Marina, who has Russian roots, sent me this video today. Marina has also translated several Automatic Earth articles into Russian (I’ll put up a link in a sidebar), see here. This is a taped August 24 international press conference with Alexander Zakharchenko, Chairman of The Council of Ministers of The Donetsk National Republic (DNR), and Vladimir Kononov, Defense Minister of DNR.
Since we in the west don’t often get to see the point of view of East Ukrainians, I thought it would be good to post it here. What is likely to be new to most is that the Donetsk leaders have not only recently actively started the formation of a state, they have to that end already established an army; and are therefore no longer – part of – militias.
Before I get accused of being partial once again – I get my fair share of that lately when I for instance ask for evidence of what either Russia or the (by now former) militias are accused of in the west -, I’ll just let it stand as is, and add parts of the transcript. At the very least you may find this informative. I did. And if at the end you think these guys are terrorists who don’t have the right to live free and in peace, so be it. But at least you’ll have seen their side of the story.
And I’ll add Putin’s speech yesterday at the Customs Union, where he met Poroshenko, for even more information from ‘the other side of the fence’. If only because whether we like it or not, the Ukraine ‘situation’ is very far from being solved, or over. And if you ask me, far too many people have died in the conflict already.
Our western leaders insist that the resolution is in the hands of Russia, or even Putin alone, but I think we need to ask ourselves if that is really the truth and nothing but the truth.
• As you all know, a week ago we announced our plan to attack. We started it yesterday. Until yesterday we have been preparing for the attack, examining trophy equipment, arming the crews, and testing communication between different military formations. I can now proudly announce that we formed 2 tank battalions, 2 full artillery brigades, 2 Grad divisons, 1 mechanized infantry battalion, 3 infantry brigades and a special purpose assault airborne brigade. All these units have now received Army numbers. The communication system have been regularized and 2 field hospitals and 1 maintenance brigade have been formed.
We have begun testing all these units in battle. Yesterday we began an attack on Amvrosiyivka enemy group. According to our data, in the course of the offensive, the enemy lost about 45 units of military equipment, we captured 14 units of military equipment, and about 1,200 people were killed and wounded. There are two cauldrons at the moment, in Amvrosiivka and Starobeshevskaia. We started to advance at 4 a.m. on Elenovka, where the fighting is still going on. 2/3 of Elenovka is under our control. We hope to clean up these areas before the night. However, the offensive will not end at that. We will continue until we free all populated areas in the Donetsk National Republic. The army is ready and we have the support of the people. There will be more and more prisoners.
• Now regarding the Parade. I deliberately put the trophy equipment on display on Lenin Square. Everything that will come to us from Kiev, will end up in the same condition sooner or later. The more will come, the easier it will be for us to restore our economy. As you may know, metallurgy is one of our main industries.
• You can now ask your questions.
• Does the militia fire on the houses?
Let me correct you right away. We were the militia 10 days ago. Today, we are the armed forces of the Donetsk National Republic. The DNR’s armed forces by no means try to strike on residential neighborhoods and houses. We don’t and never will practice this. This is our homeland, our soil, and our Motherland. This is a war on our territory that we want to preserve. We’re not animals. We are not fighting in Kiev, we are fighting at home.
• Unfortunately, dear journalists, the West tries to invade us with a regularity of 30-50 years. That is, every 30-50 years the Western civilization tries to impose on us their opinion and their way of life. The First World War, the Great Patriotic war, the Crimean war before that and so on well into the depths of history. As a result, the West traditionally gets the fall of Berlin, Paris, etc. There is Maidan every year In Kiev [..] The West comes every 30-50 years to get what it deserves. Now in 2014, they are slightly delayed.
• I will invite several officers of the French Navy, who want to fight with us. They are willing to give an interview. We have Europe fighting amongst us. The European ideals of equality, fraternity, and the French revolution, as in the Marseillaise, resonate with the patriots of France. It means, the nation is not dead, since it has such representatives who are willing to go to the far away place to fight for their ideals, which the Bastille was once taken for. Yes, there are volunteers: the French, the Russians. Is it a bad thing? It’s great.
• Are there regular Russian military units fighting on your side?
If you think that Russia is sending its regular units here, then let me tell you something. If Russia was sending its regular troops, we wouldn’t be talking about the battle of Elenovka here. We’d be talking about a battle of Kiev or a possible capture of Lvov. Now there is a war on our soil for our territory. We have an influx of volunteers from all over the world. Of course, the Russian help would be very desirable, but from a political point of view it is impossible and unrealistic.
• Thanks, by the way, to the European countries. You do not acknowledge this war just as you did not acknowledge the great Patriotic war, didn’t you? You support the anti-terrorist operation against terrorists and separatists.
Have you not developed a Charter of free territory, I believe, in Switzerland? A Territory has a right of self determination and separation after a referendum. Germany lives by the same principles. There will be a referendum in Scotland soon. That is, you call your own principles democratic and carry them out (almost) democratically. The example of Czechoslovakia was peaceful. Yugoslavia, unfortunately, was torn into a thousand little pieces by you.
Using military methods by the way. We have the same thing happening here. That is, if you stop pursuing a policy of double standards and will be able to understand that people live here. What is our fault? The fault of Donetsk, Donbass, our land? That we are asked to live independently? That we wanted to live the way we want? To speak our language? To make friends with whom we want?
• We didn’t want to go to Europe. We have different mentalities, religion. But we have a different religion. We want to go East. We wanted to live the way we want, but we were not allowed to. We were called terrorists and separatists. Please note, we did not capture any regional administrations, nor did we scorch district departments. That’s what the Maidan did. Slogans: “No oligarchy‚ Equality and brotherhood”, “Freedom of religion and language”, “Freedom of choice”. All these slogans are from the Maidan. We want the same thing. So why are we the bad guys? What did we do to deserve being bombed from planes?, shot at from tanks? and have phosphorous bombs dropped on us?
Explain to me what an anti-terrorist operation is?! There police forces and intelligence services are involved, and not regular military units, military vehicles and aircrafts. Dear journalists, please correct me if I am wrong. If we are terrorists, then the police and the security service of Ukraine must fight us. 30, 25, 95, 72, and 76 – the entire Ukrainian army is present on our territory. Three conscriptions, the national guard, territorial battalions, private battalions Aidar, Azov, Shakhtersk, Donbass, Dnieper-1, Dnieper-2, Dnieper-3, battalion Kiev, and now Kryvbas. What have we done? What is our guilt? The fact that we have shale gas, for which you want to erase entire Slavyansk from the face of the earth? Or any other financial interests?
• We are all descendants of the glorious ancestors. We all have ancestors that we are proud of. Between the two of us there are two Heroes of the Soviet Union. We are still able to hold weapons in our hands. We swallowed with our mothers’ milk a pride and desire to live in free and happy Donbass. We’ll tell anyone who comes to harm us on our soil: we will fight tooth and nail for our Motherland. Kiev and the West made a big mistake by awaking us. We are the hardworking people.
While others were jumping on the Maidan for 300 grivnas, our people were down in the mine, mining coal, melting metal and sowing crop. None of us had time to jump, we were busy working. When a person who just yesterday worked with a jackhammer or operated a harvester, today got behind a steering wheel of a tank or Grad, or picked up a machine gun, the line has been crossed and you cannot stop him. The one who left his job knows that he will fight to the end and to his last breath. You may pass it on to others: do not wake the beast. Just don’t. While there is still an opportunity, let mothers spare their sons.
• Now I want to say: I don’t want to fight. It wasn’t my choice, but I’ll fight till the end for my land, no matter who, when and how numerous they were. This is a battle of annihilation. Unfortunately, the Slavs are fighting among themselves and destroying their best people. We want to reach out to all the relatives and mothers: do not send your sons here. Leave us alone. Let us live free and in peace. We didn’t come to you in Kiev, Dnepropetrovsk, or Zaporozhye. We are not marauding your villages, raping your women, killing your elders and stealing their military decorations.
Remember decorations for Stalingrad, the capture of Berlin, Gold Star medals, Orders of Glory, Orders of the Red Banner, mixed up with women’s earrings?… We don’t do that. We want to live on our land the way we want. We don’t need you. We are different. Ukraine of the East and the West is an artificially created conglomerate. However, we didn’t start this war. If someone has a political conscience, a will and a courage of a real man, I’m just suggesting to stop this operation. You don’t have to recognize our status, just leave us alone within our borders of Donetsk and Lugansk republics, and we will kiss each other goodbye.
• Do you think the meeting with Poroshenko will bring any positive solutions?
Let me clarify. No federalization can be possible today. There is time for everything. We asked for the federalization 3 months ago, then we asked for a permission to hold a referendum. That time has passed, now we want to live independently. The Ukrainian authorities are using police methods to subdue us: they arrest us, cordon us off, and conduct anti-terrorist operations against us. By now so much blood has been spilled and so many people have died for freedom.
How can we speak of federalization? What is federalization? This is a series of bureaucratic procedures that need to be done. But we want to live independently. We have very rich land. Talks about subsidies is a lie perpetrated by thieves to steal money. Each President understood this very well and always participated in it. We are a self-sufficient region with its agriculture, developed industry, forests, fields, and seas. We have everything from a ‘Switzerland’ to the sea. Resort areas, agriculture, chemical and coal industry, rich minerals, gas deposits, etc.
Despite close ties with the rest of Ukraine, we can and must be able to feed ourselves. If they do not understand it in a good way, then we will ask them in a hard way. I hope that the meeting between Poroshenko and President Vladimir Putin will lead to the taking of our position into account.
President Of Russia, Vladimir Putin:
Colleagues, First, I would like to thank Minsk and Belarus for the opportunity to meet here. The format we are using here – the Customs Union-Ukraine-EU – gives us a good opportunity to discuss issues pertaining to the impact of signing by Ukraine of the EU Association Agreement within the context of its cooperation with the Customs Union states.
Russia has always respected the sovereign choice of any nation to organise its political life and make all sorts of unions, both military and economic, and we will continue to do so. However, we hope that this will not be detrimental to other participants in international communication, and not at our cost. As you may know, Ukraine is deeply integrated into the CIS economic space. Alongside Russia, Belarus and Kazakhstan, it is actually an inseparable part of the largest economic complex in the world, which took ages, rather than years or decades, to create – and this is no exaggeration.
Our countries’ companies have developed close ties in all the basic industries: in the fuel and energy sector, which includes nuclear power, in chemical production, in aviation and machine building, space, metallurgy and metals processing, in construction and agriculture. We have developed unique production chains and created technological alliances. Russian capital represents about 32% of the Ukrainian banking system. The Customs Union states are Ukraine’s key foreign trade partners. In 2013, mutual trade turnover came up to $50 billion. This is comparable to what is going on the western track. In the first six months of 2014, our trade turnover reached $22.7 billion. The Customs Union accounts for 30% of Ukraine’s exports. We have to openly state that the Russian market takes up most of this volume.
We have developed a good legal basis for our cooperation. In 2011, a free trade zone agreement was signed within the CIS framework. I would like to stress here that Ukraine took a very active stance in this respect. It actually insisted on signing this agreement. We are still drafting agreements on free trade in services, on state purchases and on pipeline transit. We believe that it would be expedient not only to maintain, but also to significantly step up our cooperation. However, the question arises of whether this would be possible if the Ukraine’s association agreement with the EU really starts to work.
Russia has stated on numerous occasions that full acceptance by our Ukrainian friends of all the tariff liberalisation requirements and the adoption of the European Union technical, sanitary and veterinary norms will have a negative impact on the scope and dynamics of trade and investment cooperation in Eurasia. Not to mention the fact that all these norms – the EU sanitary norms and regulations that we do not apply or apply only partially, and the technical regulations will actually close the Ukrainian market for our goods, for goods from the Customs Union and Russia.
The rejection of common CIS technical norms and adaptation to EU standards will cost Ukraine billions of euros. It will lose its partnerships with the Customs Union states in industry, finance, agriculture and transportation. As soon as Ukraine introduces zero import duty on goods from the EU, a step envisaged right after the ratification of the agreement that would apply to 98% of all the goods, there will obviously be a sharp increase in the supply of European goods to the Ukrainian market.
We understand our European partners; they have already developed the Ukrainian market rather well, and would like to get hold of whatever is left and squeeze out everyone else. Besides, less competitive Ukrainian produce will also be squeezed out from its own market. Where to? Primarily to Russia and the other Customs Union states, but primarily to us.
We should not rule out the risk of illegal re-export to the Customs Union market of goods from the EU under the guise of Ukrainian produce, either. Technical regulations and ways of establishing the country of origin are very important here. Nobody ever discussed this with us. Nobody, actually, ever discussed with us any of the issues I have just mentioned. I believe we will take this up in detail later, without press coverage. At some stage, we were simply told that this was none of our business, that they do not, for instance, discuss our relations with China or Canada.
However, let us bear in mind that China and Canada are far away, while economic relations between Russia and Ukraine are a completely different story. Besides, Russia is not the least of our EU friends’ partners. I believe it would be appropriate to have an open discussion of this matter. There has been nothing of the kind, unfortunately. However, we pin great hopes on this meeting, in the sense that it would be frank and substantive.
By very conservative estimates, the total loss for the economy of Russia alone may amount to 100 billion rubles on the first stage, that is $3 billion. This will affect entire sectors of our economy and agriculture, with all the consequences for economic growth and employment rates. Belarus and Kazakhstan will also incur losses, of course. And of course, Russia cannot lie by in this situation. I would like to stress that we would be forced to reciprocate, to protect our market. In full compliance with the provisions of the CIS agreement on the free trade zone and with WTO norms, I would like to stress this, we would be forced to cancel preferences for imports from Ukraine.
I would like to note here that we do not intend to discriminate against anyone, and we will not do it. I simply wanted to make this perfectly clear. We will simply be forced to introduce a regular trade regime for Ukraine. The same one that applies to trade between Russia and the European Union. It is called the most-favoured nation treatment. Sounds good and is exactly to the point. However, no preferences that are now envisaged by the CIS free trade zone regulations.
We will of course take a very careful look at the application by our Ukrainian friends of the phyto-sanitary norms envisaged by the EU Association Agreement and we will mirror them. Our regulations in this area are very flexible now. We will introduce the exact same norms for Ukraine; and as regards the industry, one of the major components here, as I have said, is establishing the origin of the goods. We have a strong suspicion, as I have already said, and there is a great threat that European goods will be brought in through Ukraine. Mr Poroshenko will say what he thinks about this when he makes his address, I can see him disagreeing. Even within the Customs Union, we are already receiving goods from the EU that are banned for import in Russia. In this case, unfortunately, they are coming through Belarus.
The label reads: the country of origin – Belarus. You remove it: Poland. With Ukraine this would increase manifold. We will be flooded, you see? I know that both the President and the Government of Belarus are trying to prevent this negative illegal practice. We at least have an agreement, which we do not have with Ukraine. We expect today to have a constructive discussion, during which our partners will hear our arguments. Overall, we are in favour of establishing closer cooperation between the EU and the Eurasian Economic Union, of searching for ways to combine the two integration processes. I hope that all the participants in today’s meeting support the strategic goal of creating a common economic space from Lisbon to Vladivostok.
I would like to stress that we are ready to consider any cooperation scenarios that are based on the consideration of mutual interests. We are ready to have an exchange on the critical situation that has developed in Ukraine, which, I am certain, cannot be resolved through further escalation of force without due consideration of the vital interests of the country’s southeast regions and without a peaceful dialogue with these regions’ representatives.
Thank you for your attention.
Nice pick! Let the tractors come to Paris!
By making ex-banker Emmanuel Macron his new Economy Minister, French President Francois Hollande will be hoping to boost his pro-reform agenda and end two years of infighting on his economics team. Macron, 36, Hollande’s top economic adviser until a few weeks ago, has the business community’s ear, although his appointment will not ease the cabinet’s relations with rebel lawmakers who want an economic policy U-turn. The contrast could not be starker between Macron, who helped draw up Hollande’s pro-business agenda, and the man he will replace, firebrand, anti-austerity advocate Arnaud Montebourg, who was ousted on Monday for slamming the government’s economic policy. Macron, a former partner at Rothschild bank, will work alongside Finance Minister Michel Sapin, 62, a close Hollande ally, to try and reinvigorate the euro zone’s second-biggest economy. The stagnant economy has forced the government to abandon its growth and fiscal targets for this year, while unemployment is at a record high of over 3 million.
Macron will be charged with carrying out Hollande’s main economic goals of cutting labor costs, slashing red tape and opening up closed professions such as notaries and pharmacists, not an easy task as the government has a shaky majority with which to push through reforms. Still, while French CEOs often complained about Montebourg’s protectionist policies, Macron won wide respect in the business community within months of becoming Hollande’s advisor two years ago. “Emmanuel Macron is our relay, our entry point to the president,” France Telecom chief executive Stephane Richard told Challenges magazine in September 2012. “I have seen him at Rothschild, he will reassure everybody.” Macron studied in France’s top elite schools, including the ENA civil service school, which Hollande and many top French officials have attended. “Macron has proven his worth in the Elysee,” an advisor to Hollande said, referring to the president’s official residence. “He knows the business world very well … and most important of all, the president fully trusts him.”
Tensions between ministries over France’s economic policy are a long-standing tradition, but had never been as strong as since Hollande became president in May 2012 and Montebourg took the industry and then the economy portfolio. The new team of Sapin and Macron should “increase the pace of reforms in the strict line of what has been decided at the Elysee,” ING analyst Julien Manceaux said, referring to public spending cuts and tax cuts for businesses to boost the economy. “The new economy minister is certainly a confirmation of Mr Hollande’s intentions, and a very good signal to France’s European partners,” Manceaux said. The first reaction from one of the 40 or so Socialist lawmakers who are opposed to Hollande’s pro-business policies was far less enthusiastic. “Macron the liberal to replace Montebourg: a laughable provocation,” Laurent Baumel said on his Twitter page.
The German government is likely to take the line of least resistance over the latest European discord about its policies of budgetary rigor, allowing some extra fiscal leeway for the embattled French and Italian administrations, while at the same time maintaining a longer-term drive for reforms and orthodoxy. Yet, beneath the surface, tensions are building that point to a deep-seated schism among the three principal members of economic and monetary union (EMU), making up two-thirds of the gross domestic product of the euro bloc. Angela Merkel, the chancellor, and Wolfgang Schäuble, the finance minister, have little choice but to acquiesce in renewed pro-growth calls. These are particularly virulent in France, where President François Hollande is looking ever-more vulnerable after he was forced on Monday to sack Economy Minister Arnaud Montebourg following his assault on Hollande’s budget-consolidation plans.
At the same time, opposition in Berlin to quantitative easing in the form of full-scale European Central Bank purchases of government bonds by euro-member governments appears to be softening, even though deep skepticism about the utility of such measures remains in force. Any eventual ECB decision on QE — which could still be months away — will need to be coupled with cooperative action with governments on structural and fiscal reforms, a point made by Mario Draghi, the ECB president, in his speech at the Jackson Hole monetary conference in the U.S. last week. The ousting of Montebourg over what he claimed have been German-inspired austerity policies is being greeted in Berlin as a positive clarification of France’s determination to press ahead with reform efforts. Schäuble is likely to maintain a show of public solidarity with Michel Sapin, the pro-reform finance minister, who held the same post 22 years ago in the ill-starred government of Pierre Bérégovoy (who committed suicide in May 1993) under President François Mitterrand.
Sapin’s position has been reinforced in the short term by the departure of his outspoken rival Montebourg, who has blamed Merkel for launching “absurd” policies that have unleashed ‘the most destructive crisis in Europe since 1929”. However, the French finance minister could be forgiven for being haunted by a sense of déjà vu, for the parallels with past European monetary turbulence are disturbing. Sapin is a veteran of the upsets between France and Germany in 1992 that almost forced the devaluation of the French franc within the European exchange rate mechanism (ERM), the forerunner of the EMU. He was preparing for a breakdown of Franco-German monetary ties when antagonism between the German and French monetary authorities was overcome by a secret telephone intervention from Chancellor Helmut Kohl, cajoling the Bundesbank to acquiesce in a statement supporting the franc’s ERM parity, in the midst of talks in Paris with Mitterrand. At the height of the crisis on Sept. 22, 1992, Mitterrand told Kohl, “I am aware of the independence of the Bundesbank. But what does it want? To remain the last one standing on a field of ruins. Because it will be a field of ruins.”
Former Federal Reserve Chairman Ben Bernanke, a prominent student of the Great Depression, contends that the 2008 financial crisis was actually worse than its 1930s counterpart. Mr. Bernanke is quoted making the statement in a document filed on Aug. 22 with the U.S. Court of Federal Claims as part of a lawsuit linked to the 2008 government bailout of insurance giant American International Group. “September and October of 2008 was the worst financial crisis in global history, including the Great Depression,” Mr. Bernanke is quoted as saying in the document filed with the court. Of the 13 “most important financial institutions in the United States, 12 were at risk of failure within a period of a week or two.” Former Treasury Secretary Timothy Geithner is quoted in the document offering a similarly apocalyptic assessment. From Sept. 6 through Sept. 22, the economy was essentially “in free fall,” he said.
Starr International Co., a company run by AIG’s former chief executive, Maurice “Hank” Greenberg, sued the U.S. government in 2011, seeking billions of dollars in damages over AIG’s rescue. Starr’s suit alleges that parts of the government’s $182 billion bailout and sale of AIG assets were unconstitutional. Asked why he thought it was essential for the government to rescue AIG, Bernanke said, “AIG’s demise would be a catastrophe” and “could have resulted in a 1930s-style global financial and economic meltdown, with catastrophic implications for production, income, and jobs.” Also, the former Fed chief felt comfortable that the overall business was viable despite the troubles of the so-called financial products division. “It was our assessment that they had plenty of collateral to repay our loan,” Mr. Bernanke said.
Do see, but don’t believe.
In this first of a series of London interviews that Lars Schall conducted for Matterhorn Asset Management this summer, Lars met up with the Telegraph’s Ambrose Evans-Pritchard to discuss geopolitical tensions in the world, China’s challenges, threats to the global economy and the expectations for gold. Ambrose Evans-Pritchard is the international business editor of the British newspaper The Telegraph. He was the Telegraph’s Washington bureau chief in the 1990s. While he hardly needs an introduction to regular Automatic Earth or Zero Hedge readers, here’s a recent statement encapsulating the global economy, from July 25: “In the 30 years or so that I have been writing about world affairs and the international economy, I have never seen a more dangerous confluence of circumstances, or more remarkable complacency.”
The cabinet reshuffle taking place at the heart of the French government will restore confidence and help to maintain the course of reform plans, according to Jean-Claude Trichet, the former president of the European Central Bank (ECB) and the former governor of the Bank of France. Trichet said that the changes were “absolutely necessary” after the extreme aggression showed by some of the former members of the cabinet and rejected the idea that it wouldn’t make a difference to France’s stagnating economy. “I think there is a lot of confidence,” he told CNBC Wednesday. “Now we have a clear line and of course.” In France on Tuesday, President Francois Hollande named a new lineup for his cabinet after left-wing rebels were ejected from their positions on Monday. The most significant and surprising appointment was that of Emmanuel Macron, a former Rothschild banker and ex-presidential economic adviser to Hollande.
Michael Sapin, the current finance minister was widely-tipped to be given the role, but the relatively unknown Macron will now be given the chance to work alongside Sapin. Macron is not a politician and is exactly the opposite of his predecessor Arnaud Montebourg. Montebourg was an anti-austerity advocate and was dismissed on Monday for slamming Hollande’s economic policy. Macron is seen as pro-business and extremely well connected within the industry. He was the main architect behind the reforms passed in the first two years of Hollande’s incumbency and has already caused some concern with the extreme left-wing in the ruling Socialist Party.
Germans today said Draghi was “overinterpreted”. Don’t bet on QE yet.
Market-watchers are parsing the Federal Reserve’s every word for clues about where bond yields are headed, but the European Central Bank (ECB) may be in the driver’s seat. “Monetary policy development in the euro zone remains a critical factor in projecting the forward path of global long-term bond yields, especially since quantitative easing appears forthcoming,” DBS said in a note Wednesday. It noted that global 10-year government bond yields have largely trended downward this year, with the biggest declines coming from euro zone economies. “Even as the market expects U.S. [interest rate] hikes to draw closer, the decline in 10-year yields across the developed world has dragged down 10-year Treasury yields,” it said.
The U.S. stock markets rallied to record highs this week, but while that would traditionally signal an exit from safe-haven assets such as Treasurys, yields barely budged — even as Fed chief Janet Yellen made slightly more hawkish comments at the Jackson Hole meeting of central bankers last week. But bond yields, which move inversely to prices, in the euro zone have continued to fall since ECB President Mario Draghi said Friday that the central bank is considering additional tools if inflation falls further, suggesting an asset-purchase program could be in the offing. U.S. 10-year Treasury yields were around 2.39% in Asian trade Wednesday, down from around 3.0% at the beginning of the year. The 10-year German bund was around 0.94%, tapping its lowest in at least 200 years, if not a record low, down from around 1.94% at the beginning of the year. On the periphery, Spain’s 10-year bond also may have tapped record lows, yielding around 2.19%, down from around 3.90% at the beginning of the year.
Ron Paul and Mark Spitznagel talk. Mark Spitznagel: Ron, you have been the galvanizing force of a resurgent liberty movement in the United States. Yet, we find ourselves in this world where interventionism is on the rise, and much of America remains complacent about it. For instance, I think we would agree that today’s crony-capitalism and monetary-interventionism by central banks is at an unprecedented scale that will once again leave destruction in its wake. Why is America letting this happen, and moving away from its Jeffersonian ideals? Moreover, I have to ask you, has the liberty movement stalled, or even failed?
Ron Paul: Mark, on the surface and in Washington it may appear that interventionism is on the rise but in reality it’s on the defensive, more so than ever. Indeed there is a lot of complacency as that is frequently the rule for the majority of people regardless of the system. Where there is little complacency is with the intellectual leaders now leading the charge against the foreign and economic interventionists who have been in charge for decades and created the major crisis that we face today.It’s never easy politically to turn off bad policies and many times we have to wait until the policies self-destruct. The philosophy of non-intervention is growing significantly and that is crucial since ideas do have consequences. The obvious failure of the current system, and the current intellectual leaders of the younger generation who are more favorably inclined toward non-intervention, provide the encouragement we need to clean up the mess. During my presidential campaigns, I was always quite pleased when students held up signs saying: “You cured my apathy.”
A question for you, Mark: I know you and a very few others like Jimmy Rogers know about authentic non-intervention in the economy, but what are Wall Street traders and investors like? Are they helpful in exposing crony-capitalism or are they part of the problem?
Mark: Unfortunately, Wall Street can’t help but respond to monetary intervention, like puppets to the Federal Reserve puppet master. Not only has the Fed turned just about every investor into a crazed gambler desperate for any yield above today’s artificially low interest rates, for professional investors the desperation is compounded by the career risk associated with underperforming in the very next period. If you’re fired for not having played the Fed’s game in the next round, who cares about what will happen in future rounds, and who cares about the long-run implications of this crony-capitalist game? I see this temporal myopia at the very heart of Washington politics as well. If politicians don’t get reelected each period, then from a career standpoint any concern for the future was for naught. It ranges far and wide, from corporate managers to, even more significantly, farmers: Think of how debt and farm policy distortions induce wringing out everything that we can from each harvest, even at the expense of future harvests (such as with soil erosion).
Frédéric Bastiat said it best when he condemned the pursuit of a small present good that will be followed by a great evil to come, rather than a great good to come at the risk of a present small evil. The latter is extraordinarily difficult today. To me, your ability to focus away from the present and truly see the great good or evil to come was really so astonishing about your political career. What was your secret, Ron, and what kept you from losing sight of that?
Old boys club.
IMF chief Christine Lagarde has been placed under formal investigation by French magistrates on Wednesday for her alleged role in a long-running political fraud case, a source close to the former French finance minister said. The source said Lagarde, who earlier was questioned by magistrates in Paris under her existing status as a witness, considered their decision to investigate her for alleged “negligence” was unfounded and would appeal it. A French judiciary source also confirmed the step. In French law, magistrates place someone under formal investigation when they believe there are indications of wrongdoing, but that does not always lead to a trial. The inquiry into tycoon Bernard Tapie has embroiled several of former president Nicolas Sarkozy’s cabinet members including Lagarde. Tapie – who supported Sarkozy in the last two elections – was awarded €403 million in a 2008 arbitration payment under Sarkozy’s presidency to settle a dispute with the now defunct, state-owned bank Credit Lyonnais over a 1993 share sale. Lagarde was finance minister at the time.
Nato is to deploy its forces at new bases in eastern Europe for the first time, in response to the Ukraine crisis and in an attempt to deter Vladimir Putin from causing trouble in the former Soviet Baltic republics, according to its secretary general. Anders Fogh Rasmussen said the organisations’s summit in Cardiff next week would overcome divisions within the alliance and agree to new deployments on Russia’s borders – a move certain to trigger a strong reaction from Moscow. He also outlined moves to boost Ukraine’s security, “modernise” its armed forces and help the country counter the threat from Russia. Rasmussen said: “We will adopt what we call a readiness action plan with the aim to be able to act swiftly in this completely new security environment in Europe. We have something already called the Nato response force, whose purpose is to be able to be deployed rapidly if needed.
“Now it’s our intention to develop what I would call a spearhead within that response force at very, very high readiness. “In order to be able to provide such rapid reinforcements you also need some reception facilities in host nations. So it will involve the pre-positioning of supplies, of equipment, preparation of infrastructure, bases, headquarters. The bottom line is you will in the future see a more visible Nato presence in the east.” Poland and the three Baltic states have been alarmed at the perceived threat from Russia and have been clamouring for a stronger Nato presence in the region. They have criticised what they see as tokenism in the alliance’s response so far. But the issue of permanent Nato bases in east Europe is divisive. The French, Italians and Spanish are opposed while the Americans and British are supportive of the eastern European demands. The Germans, said a Nato official, were sitting on the fence, wary of provoking Russia.
A US Navy destroyer and a French frigate are expected to enter the waters of the Black Sea next week, a diplomatic and military source said. “Two NATO warships at once will arrive in the Black Sea on September 3. They are US Navy’s destroyer USS Ross and frigate, Commandant Birot, of the naval forces of France,” the unnamed source told RIA-Novosti news agency. There’s currently one NATO ship present in the Black Sea, with French surveillance ship, Dupuy de Lome, expected to remain in the area until September 5. USS Vella Gulf, which was patrolling the black Sea since August 7, recently left for its port of commission. The maintenance of the operational rotational presence of NATO ships does not promote stability in the Black Sea region in any way, the source noted. According to the Montreux Convention of 1936, warships of non-Black Sea states can stay in the Black Sea for no more than 21 days. But, earlier this year, the convention was violated by American frigate USS Taylor, which exceeded the authorized time limit by 11 days, the source said.
In July this year, the grouping of NATO ships in the Black Sea reached nine units, setting a record for the post-Soviet period. The grouping consisted of Vella Gulf of the US Navy, French frigate Surcouf, Greek corvette Mahitis, two reconnaissance ships of France and the Elettra of the Italian Navy. The same months, NATO held BREEZE 2014 naval exercises off the Bulgarian cost of the Black Sea, in which ships from Bulgaria, Romania, Turkey, Greece, Italy, Britain and the US participated. The maneuvers were aimed at showing the alliance’s willingness to support its east European members who have been unnerved by Russia’s alleged involvement in the Ukraine crisis. In April, a Russian Su-24 fighter jet made several circles around USS Donald Cook that was then in the waters of the Black Sea. Pentagon officials reacted by claiming that “Russia’s actions were contrary to international protocols and accepted agreements regulating the interaction of the armed forces of the two countries”.
There we go.
Ukraine needs “practical help” from NATO and expects the U.S.-led military alliance to make momentous decisions to this end at its summit in Wales in September, Prime Minister Arseny Yatseniuk said on Wednesday. “NATO is our partner and we expect practical help from our Western partners and from the (NATO) alliance,” Yatseniuk told a government meeting.
Russian and Ukrainian leaders have concluded their first official face-to-face meeting in Minsk during which they discussed Ukraine’s Association Agreement with EU and the crisis and humanitarian disaster in the east of the country. Russia will do everything to facilitate a peace process in Ukraine, President Putin told the press following the 2-hour talks, which he described as “positive.” However, Russia did not and had never set forth conditions for settling Ukraine’s internal conflict, Putin added, so a ceasefire agreement was not discussed during the talks in the absence of peace suggestions from Ukrainian leadership. “We, Russia, cannot talk about any ceasefire conditions whatsoever, or possible agreements between Kiev, Donetsk and Lugansk,” Putin stated.
“We can only facilitate the creation of an environment of trust in the course of this possible and much needed, in my opinion, negotiation process. This is what we talked about,” Putin added. In the meantime a contact group on the implementation of Ukraine’s Association Agreement with the EU must resume its work as soon as possible to formulate final conditions for the free trade zone, Putin said. “Not all of our arguments are accepted by our colleagues, but at least we were heard and we have agreed to intensify the exchange of views, and try to find some solutions,” Putin said, adding that in the absence of a final agreement Russia will have to “take measures” to protect its economy. The sides have also agreed that a resumption of gas and energy talks is urgently needed, the Russian president said.
President Poroshenko quickly left the building after the talks, and headed to the Ukrainian embassy in Minsk. There he has held a ‘wrap-up meeting’ with the head of EU diplomacy, Catherine Ashton. Ukraine has reached an agreement with Russia to start consultations between the border guards and the general staff of the two states in order to produce initial conditions for reaching a settlement in east Ukraine, Poroshenko told the press afterwards. Poroshenko also said that a peace plan will be prepared soon for a speedy cessation of hostilities.
Might as well be nice then. Or civilized.
Europe will remain heavily reliant on Russian gas for at least another decade, according to a leading rating agency. Fitch said a lack of alternative sources meant policymakers would have no choice but to continue buying gas from Russia until at least the mid-2020s and “potentially much longer”. Europe already buys a quarter of its gas from Russia, and analysts expect consumption to increase by a third by 2030 as economies recover from the debt crisis and gas-fired electricity generation replaces old coal and nuclear power. Analysts said it would be difficult for countries to secure alternative sources of supply in the medium term, leaving them at risk of being “held hostage by dominant suppliers”, including Russia. “Any attempt to improve energy security by reducing European reliance on Russia would require either a significant reduction in overall gas demand or a big increase in alternative sources of supply, but neither of these appears likely,” Fitch said in a report on Tuesday.
Growing tensions between Ukraine and Russia over the latter’s annexation of Crimea have led to a raft of tit-for-tat sanctions between Russia and the West. The European Commission (EC) has laid out plans to reduce Europe’s reliance on energy imports, including promoting indigenous sources of renewable and nuclear energy, and a single energy market. Finland, the Czech Republic and much of eastern Europe rely heavily on Russia for gas, while Germany imports a substantial amount from Russia. Fitch said overhauling Europe’s current infrastructure and making the network more resilient to shocks would cost around €200bn (£160bn). Although around half of this can be funded by capital markets, there is a risk that consumers may also be forced to pay for the upgrade through higher energy bills. Analysts also highlighted Russia’s dominant role across the energy market. “Even if coal-fired and nuclear energy were favoured over gas, the impact on energy security would be limited because Russia also supplies 26pc of the EU’s hard coal and is the sole supplier of fuel rods to nuclear power plants in several countries,” it said.
Not so sure going forward.
Investors seeking greener energy stocks will find it difficult to reproduce the returns offered by oil and natural gas producers, according to a report from Bloomberg New Energy Finance. With a market value of $4.9 trillion, oil and gas investments offers a combination of scale, growth and dividends that can’t be readily found in other industries, the London-based research company said today. Coal, which has already fallen out of favor with institutional investors, can be more easily replaced with bets in other industries. Environmentalists have proposed fossil-fuels divestment, modeled on a campaign that targeted companies in apartheid-era South Africa, as a way to curb climate change by shifting investments away from polluting technologies. Stanford University is among 13 colleges and universities to join the campaign this year, committing in May to divest from coal – but not oil and gas.
“Oil and gas stocks have outperformed other major sectors over the past five years,” according to the report. “Coal stocks, on the other hand, have been striking underperformers, reflecting a fall in international coal prices as the U.S. shale boom caused generators to switch into gas-firing.” The divestiture movement is backed by Bill McKibben, an environmental writer and co-founder of 350.org, a group that has identified 200 companies with the largest reserves of coal, oil and gas. McKibben warns that fossil fuel companies hold undisclosed financial risks as governments move to limit emissions blamed for global warming. “If you are investing in fossil fuels, you are essentially betting that we won’t ever take climate change seriously,” Jason Kowalski, U.S. policy director for 350.org, said in an e-mail. Smart investors are moving “their money sooner rather than later.”
And that’s how we all stay warm …
New coal power stations designed to burn Europe’s massive deposits of lignite pose a serious threat to the continent’s decarbonisation efforts, according to figures released on Wednesday. Analysts from Greenpeace’s Energydesk compiled data from the German government that shows burning Europe’s reserves of lignite would wipe out the EU’s entire carbon budget from 2020 until the end of the century. Lignite – also known as brown coal – power stations currently make up more than 10% of the EU’s total CO2 emissions. Greenpeace said that if Europe is to continue to play its part in keeping the world within the internationally accepted limit of 2C of warming, 90% of the carbon contained in its lignite reserves must remain buried.
Despite this, lignite-fuelled power stations are still being built, locking in consumption of the fuel for decades. There are 19 such facilities in various stages of approval, planning or construction in Bulgaria, Czech Republic, Greece, Germany, Poland, Romania and Slovenia. Greenpeace figures show these new projects alone would emit almost 120m tonnes of CO2 every year – equivalent to three-quarters of the annual carbon output of the UK’s energy sector. The average lifespan for a coal power station is about 40 years, meaning the plants could release nearly 5bn tonnes of CO2 into the atmosphere.
Humans risk causing irreversible and widespread damage to the planet unless there’s faster action to limit the fossil fuel emissions blamed for climate change, according to a leaked draft United Nations report. Global warming already is impacting “all continents and across the oceans,” and further pollution from heat-trapping gases will raise the likelihood of “severe, pervasive and irreversible impacts for people and ecosystems,” according to the document obtained by Bloomberg. “Without additional mitigation, and even with adaptation, warming by the end of the 21st century will lead to high to very high risk of severe, widespread, and irreversible impacts globally,” the UN Intergovernmental Panel on Climate Change said in the draft.
The study is the most important document produced by the UN about global warming, summarizing hundreds of papers. It’s designed to present the best scientific and economic analysis to government leaders and policymakers worldwide. It feeds into the UN-led effort drawing in more than 190 nations for an agreement on limiting emissions. The report “will provide policymakers with a scientific foundation to tackle the challenge of climate change,” IPCC Chairman Rajendra Pachauri said in a statement from the panel’s office in Geneva. “It would help governments and other stakeholders work together at various levels, including a new international agreement to limit climate change” that countries intend to broker by the end of next year.