Nov 182014
 
 November 18, 2014  Posted by at 1:09 pm Finance Tagged with: , , , , , , , , , , ,


Dorothea Lange Saturday afternoon, Pittsboro, North Carolina Jul 1939

Japan PM Abe Calls Snap Election, Delays Sales Tax Hike (CNBC)
Japan Prepares Stimulus to Strengthen 2015 Growth After Recession Hit (Bloomberg)
Japan’s ‘Abenomics’ Can Survive Quadruple-Dip Recession (AEP)
‘Godfather’ Of Abenomics Admits It’s A Ponzi Game, Taxpayers May Revolt (ZH)
ECB’s Draghi: Buying Sovereign Bonds Is An Option (CNBC)
Draghi Says ECB Measures May Entail Buying Government Bonds (Bloomberg)
Draghi Seen Bypassing QE Qualms to Hit Balance-Sheet Goal (Bloomberg)
Industrial Output in U.S. Unexpectedly Fell in October (Bloomberg)
Deutsche Bank Scales Back Trading in Credit Derivatives (Bloomberg)
Flash Boys Invade $12.4 Trillion Treasury Market in New Era of Volatility (Bloomberg)
Wall Street to Reap $316 Million From Day of Mega Deals (Bloomberg)
Australia’s Record-Low Rates To Head Further South (CNBC)
US Pension Insurer Ran Record $62 Billion Deficit (AP)
All Aboard The Instability Express (James Howard Kunstler)
The Secret History Of Corruption In America (Stoller)
UK Grocery Sales In Decline For First Time In 20 Years (Guardian)
1 in 5 UK Supermarkets Must Close To Restore Profit Growth (Guardian)
Putin Warns He Won’t Let Ukraine Annihilate Eastern Rebels (Bloomberg)
Shale Drillers Plan Output Increases Despite Oil Price Decline (Bloomberg)
3 Billion Gallons Of Fracking Wastewater Pumped Into Clean CA Aquifers (ZH)
Modern Slavery Affects More Than 35 Million People (Guardian)
Ebola Doctors: The Last Working Consciences In The Western World (Guardian)

It’ll give him the power to totally sink the nation. All that’s missing is a few nuke plants and a major quake.

Japan PM Abe Calls Snap Election, Delays Sales Tax Hike (CNBC)

Japanese Prime Minister Shinzo Abe called a snap election and announced a delay in the second sales tax hike by 18 months after the country fell into recession. The move announced on Tuesday comes after growth numbers on Monday showed the world’s third-largest economy shrunk by an annualized 1.6% in the third quarter after a 7.3% contraction in the second quarter, shocking the markets. “I have decided not to raise the consumption tax to 10% next October and I have decided to delay a consumption tax hike for 18 months,” Abe said at a press conference. Japan has suffered since the first consumption tax hike from 5 to 8% in April.

Abe said the rise in the sales tax “acted as a heavy weight and offset a rise in consumption”. A second consumption tax hike was set for October 2015 which would have seen a 2% increase to 10%. Abe also said the lower house of parliament would be dissolved on November 21 and an election would be called in a move to strengthen his mandate for “Abenomics” – his set of economic policies. The Japanese Prime Minister admitted that it will be a “difficult election” but said he wanted the public to back his package of reforms. “There are differing opinions on the structural reforms we have proposed and I have decided that I need to hear the voice of the Japanese public on whether or not we should go forward with these reforms,” Abe said.

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There are still ‘analysts’ around who actually believe this stuff: “Household sentiment should be relaxed thanks to the delay in another VAT hike, helping improve spending attitude and facilitate consumption recovery”. Spending in Japan has been down for years, nothing to do with sales taxes.

Japan Prepares Stimulus to Strengthen 2015 Growth After Recession Hit (Bloomberg)

With Japan’s slump into its fourth recession since 2008 threatening the failure of the Abenomics reflation program, Prime Minister Shinzo Abe’s administration is taking steps to shore up growth for the coming year. Economy Minister Akira Amari told reporters yesterday in Tokyo there’s a high chance of a stimulus package. Etsuro Honda, an adviser to Abe, said a 3 trillion yen ($26 billion) program was appropriate and should go toward measures that directly help households, such as child care support. Abe, who holds a news conference later today, is also considering a postponement of an October sales-tax increase until 2017 – a move that would add 0.3 percentage point to growth in the coming fiscal year, according to the median estimate of economists surveyed by Bloomberg.

At stake for the prime minister is assuring re-election in a likely snap vote next month that may serve as a referendum on his policies. “Household sentiment should be relaxed thanks to the delay in another VAT hike, helping improve spending attitude and facilitate consumption recovery,” Kazuhiko Ogata, chief Japan economist at Credit Agricole SA in Tokyo, wrote in a note to clients yesterday, referring to the sales, or value-added, tax. “If Abe’s Liberal Democratic Party wins in the election, ‘Abenomics’ would be set” to be sustained until as long as until 2018, when he would run up against term limits as LDP head, according to Ogata.

Less than two years into Abenomics – a three-pronged strategy to pull Japan out of two decades of stagnation through monetary stimulus, fiscal flexibility and structural deregulation – the program has yet to spark sustained growth. An April sales-tax rise saw the economy sink into two straight quarters of contraction, a government report showed yesterday. Abe, 60, has yet to implement growth-strategy items from labor-market liberalization to the securing of a free-trade deal within the U.S.-led Trans-Pacific Partnership talks. Corporate-tax cut discussions have yet to see legislation enacted. In other areas, Abenomics has stirred Japan, achieving the end of 15 years of sustained deflation and spurring focus in the stock market on corporate returns on equity. The Topix index of shares has jumped 79% in the past two years.

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Once again, Ambrose is out of his league. And not as sure as the title suggests, since he also says: “This is a formidable task and may ultimately fail.” The rest is not arguments, but exclusively wishful thinking. And harking back to what Japan did in 1932 is cute, but also entirely hollow.

Japan’s ‘Abenomics’ Can Survive Quadruple-Dip Recession (AEP)

Abenomics is alive and well. Japan’s crash into its fourth recession since 2008 is a nasty surprise for premier Shinzo Abe but it tells us almost nothing about the central thrust of his reflation blitz The mini-slump is chiefly due to a one-off fiscal shock in April. Mr Abe defied warnings from Keynesian critics and unwisely stuck to plans drawn up by a previous (DPJ) government to raise the consumption tax from 5pc to 8pc. The essence of Abenomics is monetary reflation a l’outrance to lift the country out of deflation after two Lost Decades. The unstated purpose of this “First Arrow” is to lower real interest rates and raise the growth of nominal GDP to 5pc, deemed the minimum necessary to stop Japan’s debt trajectory from spiralling out of control. This is a formidable task and may ultimately fail. Public debt is already 245pc of GDP. Debt payments are 43pc of fiscal revenues. The population is expected to fall to from 127m to 87m by 2060. Given the grim mathematics of this, the inertia of the pre-Abe era was inexcusable.

Takuji Aida from Societe Generale said the tax rise was an “unnecessary diversion from Mr Abe’s reflationary goals” but will not have a lasting effect. The contraction of Japanese GDP by 0.4pc in the third quarter – following a 1.8pc crash in the second quarter – is certainly a public relations embarrassment, but less dreadful than meets the eye. The economy expanded by 0.2pc when adjusted for inventory effects. Machinery orders rose for a fourth month in September to 2.9pc. Retail sales jumped by 2.3pc. Danske Bank’s Fleming Nielsen says Japan’s economy will be growing at a 3pc rate again this winter. Mr Abe has shrugged off the tax debacle without much political damage. He is likely to call a snap election for December, win heartily, and suspend plans for a further rise in the sales tax to 10pc next October, ditching a policy he never liked anyway.

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Besides, Ambrose, the guy who thought it all up has this: ” .. there are always new taxpayers, so this is a feasible Ponzi game”. How bad can you get it when, as Ambrose himself said, ” .. the population is expected to fall to from 127m to 87m by 2060″? It’s a hopeless game.

‘Godfather’ Of Abenomics Admits It’s A Ponzi Game, Taxpayers May Revolt (ZH)

Koichi Hamada is a special adviser to prime minister Shinzo Abe and one of his closest confidants. That makes his comments, as The Telegraph reports, even more stunningly concerning. Focusing his attention on the fact that Japan must delay the 2nd stage of its planned consumption tax hike – for fear of derailing the ‘recovery’ – Hamada unwittingly, it seems, explains the terrible reality behind the so-called “godfather” of Abenomics’ perspective on the extreme monetary policy he has unleashed… Select stunning quotes that everyone should ignore and just BTFPonziD in Japan…

“The consumption tax hike is a great big turbulence to the Japanese economy. It may have erased almost two thirds of the benefits of Abenomics,” he told the Telegraph. “At the very least, a third of this great experiment is gone.” [..] “I used to say that we should wait until the third quarter figures are out. However, by various economic indicators, the GDP figures cannot be very optimistic,” he added. [..] “We should increase the consumption tax in the intermediate future,” he said. “This first shock starting in April has been countered by a monetary counter-move. But can we risk another shock in this way?” He also said that while he fully supported the Bank of Japan’s bond buying spree, he said there would be diminishing returns from quantitative easing the longer it went on. “I completely agree with Kuroda’s direction of policy, as well as his strategy of keeping quiet and surprising the market. Of course, if you repeat the same kind of action then the impact will be weaker,” he said.

[..] Marc Faber, the famous Swiss investor, has accused Japan of “engaging in a Ponzi scheme” because the BoJ is hoovering up most of the debt that has been issued by the government. While Mr Hamada agreed that Japan had created a “mild ponzi game”, he also said it was a “feasible” one because of Japan’s huge foreign reserves. “In a Ponzi game you exhaust the lenders eventually, and of course Japanese taxpayers may revolt. But otherwise there are always new taxpayers, so this is a feasible Ponzi game, though I’m not saying it’s good.” Mr Hamada said it was important that Japanese policymakers sent a clear signal that the government was willing to do whatever it takes to smash deflation and pave the way for wage increases for millions of workers. “I’m optimistic about wages, but the uncertainty is how long it takes,” he said. Business is still in doubt about whether Abenomics will continue. If they know it will continue and the profits of export firms are really soaring, they will start to share that with their employees.”

So to sum up… as long as the BoJ keeps buying stocks and bonds in ever-greater amounts (and Japan has more taxpayers to foot the bill) then the ponzi scheme can survive in its fiscally unsustainable way… what a total farce.

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Tell ‘im ee’s dreamin’.

ECB’s Draghi: Buying Sovereign Bonds Is An Option (CNBC)

The euro zone’s growth has weakened over the summer months, European Central Bank (ECB) President Mario Draghi told European lawmakers Monday, but stressed that he was willing to do more to stimulate the economy—including the purchase of government bonds. Speaking at the European Union’s Parliament, Draghi reiterated that the bank’s governing council remained “unanimous in its commitment to using additional unconventional instruments if needed.” He added: “The other unconventional measures might entail the purchase of a variety of assets, one of which is sovereign bonds.” The comments helped the pan-European FTSEurofirst 300 close 0.5% higher on the day.

The central bank has already launched a slew of stimulus in an effort to boost the economy by easing credit conditions. These include cutting interest rates to record lows and announcing plans to purchase covered bonds and asset-backed securities (ABS) – and there are calls for the ECB to do more by launching a U.S. Federal Reserve-style sovereign bond-buying program. Further measures, “could include changes to the size and composition to the Eurosystem balance sheet, if warranted, to achieve price stability over the medium term,” Draghi added.

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“Data released today showed that officials accelerated covered-bond buying last week, with the total settled rising by more than €3 billion – up from €2.629 billion the week before.” Ahem: the goal is $1 trillion. At this rate, that’ll take 6 years.

Draghi Says ECB Measures May Entail Buying Government Bonds (Bloomberg)

ECB President Mario Draghi explicitly cited government-bond buying as a policy tool officials could use to stimulate the economy if the outlook worsens. “Other unconventional measures might entail the purchase of a variety of assets, one of which is sovereign bonds,” Draghi said in Brussels today during quarterly testimony to lawmakers at the European Parliament. In opening remarks both today and after the ECB’s monthly policy decision, Draghi stopped short of mentioning government bonds when he said that officials had been tasked with the preparation of further stimulus measures. His comments today come weeks before the institution’s critical December meeting, when it will publish new forecasts that are likely to incorporate a lower outlook for the economy and inflation. Draghi will succeed in boosting the ECB’s balance sheet back toward €3 trillion ($3.74 trillion), though he’ll have to override some policy makers’ qualms on quantitative easing to do so, according to a majority of economists in Bloomberg’s monthly survey published today.

Until now, the ECB has restricted purchases of assets to covered bonds, though asset-backed securities are now on its shopping list too. Data released today showed that officials accelerated covered-bond buying last week, with the total settled rising by more than €3 billion – up from €2.629 billion the week before. As Draghi spoke, Italian and Spanish bonds rose. The ECB president began his comments in the parliament by presenting European lawmakers with a list of policy resolutions for them to pursue in 2015 as he insisted his institution alone can’t fix the economy. “2015 needs to be the year when all actors in the euro area, governments and European institutions alike, will deploy a consistent common strategy to bring our economies back on track,” Draghi said today. “Monetary policy alone will not be able to achieve this.” “Monetary policy has done a lot,” Draghi said. “It can do more if structural reforms are implemented. It can’t do everything.”

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Not sure the Bundesbank and Nowotny will look favorable on being called ‘qualms’. 60% of Bloomberg ‘experts’ think Draghi will win, and they’re hardly ever right about anything.

Draghi Seen Bypassing QE Qualms to Hit Balance-Sheet Goal (Bloomberg)

Mario Draghi will succeed in boosting the European Central Bank’s balance sheet back toward 3 trillion euros ($3.75 trillion), though he’ll have to override some policy makers’ qualms on quantitative easing to do so. That’s the majority view of economists in Bloomberg’s monthly survey, who have become more optimistic that the ECB president will meet his goal. Most predicted he’ll have to buy more than covered bonds and asset-backed securities though, and 72% said any stimulus expansion will be against the wishes of some national central-bank governors. Draghi, who has faced opposition to his most recent measures, told European lawmakers today that an expanded purchase program could include government bonds, as he insisted the ECB alone can’t fix the region’s economy. He also reiterated his pledge to be ready with further steps should the outlook worsen, and 95% of respondents in the survey said he’ll act on that promise either this year or in 2015.

“If private-sector asset purchases are insufficient, then sovereign bonds will then likely be included,” said Alan McQuaid, chief economist at Merrion Capital in Dublin. “This will be a hard sell internally.” Resistance to Draghi’s recent loosening of policy has come primarily from Germany. Bundesbank President Jens Weidmann has repeatedly warned of the risks of large-scale asset purchases, known as quantitative easing, and Executive Board member Sabine Lautenschlaeger has said the balance between cost and benefit for some non-standard tools is currently negative. Austria’s Ewald Nowotny joined Weidmann in opposing the ABS plan. That didn’t stop a fresh reference by Draghi on Nov. 6 to driving the balance sheet back toward its March 2012 level via asset purchases and targeted loans to banks. 60% of the economists surveyed said he’ll succeed, which implies that close to €1 euros of assets will be added. In last month’s survey just 39% said he’ll achieve his aim.

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Yup, that’s that strong revovered economy for you.

Industrial Output in U.S. Unexpectedly Fell in October (Bloomberg)

Industrial production in the U.S. unexpectedly dropped in October, weighed down by declines at utilities, mines and automakers that signal manufacturing started the fourth quarter on soft footing. Output fell 0.1% after a 0.8% increase in September that was smaller than previously estimated, figures from the Federal Reserve in Washington showed today. The median forecast in a Bloomberg survey of 83 economists projected a 0.2% gain. Factory production rose 0.2%, matching the prior month’s advance that was also revised down. A pickup in manufacturing is needed to help bolster the expansion, now is its sixth year, as global growth from Europe and Japan to emerging markets cools. Rising consumer confidence and the drop in gasoline prices are brightening the outlook for holiday sales, indicating factories will get a lift in the next few months.

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When CDS dries up, there will be major problems in the markets. It’s in the size: ” .. the market that shrank to less than $11 trillion from $32 trillion before the financial crisis”. So much money is evaporating it’s scary: “requiring large swaths of credit swaps to be backed by clearinghouses, which are capitalized by banks and require traders to set aside collateral, or margin, to cover losses”.

Deutsche Bank Scales Back Trading in Credit Derivatives (Bloomberg)

Deutsche Bank will stop trading most credit-default swaps tied to individual companies, exiting a business that new banking regulations have made costlier, according to a spokeswoman. The lender will instead focus on transactions in corporate bonds, while maintaining trading in the more active market for credit swaps tied to benchmark indexes, Michele Allison, a spokeswoman for the bank said today. The firm also will continue trading swaps tied to emerging-market borrowers and distressed companies, she said. The derivatives are used by hedge funds, banks and other institutional investors to protect against losses or to speculate on the ability of companies to repay their obligations. Deutsche Bank is exiting a part of the market that shrank to less than $11 trillion from $32 trillion before the financial crisis, data from the Bank for International Settlements show.

Dealing in credit swaps, which have been blamed for exacerbating the 2008 financial crisis, has become more expensive for lenders like Deutsche Bank as regulators across the U.S. and Europe require banks to hold more capital to back trades, reducing the returns for shareholders. “When liquidity providers leave the market, it becomes really questionable if the market is functioning efficiently,” Jochen Felsenheimer, founder of XAIA Investment said in a telephone interview. “Regulators continue to dry out the CDS market by putting more and more constraints.” Among measures that regulators have enacted since the crisis is requiring large swaths of credit swaps to be backed by clearinghouses, which are capitalized by banks and require traders to set aside collateral, or margin, to cover losses if they can’t make good on the transactions. Much of the market, where the privately negotiated trades have typically been done over phone calls and e-mails, is also being shifted to electronic systems.

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What could go wrong?

Flash Boys Invade $12.4 Trillion Treasury Market in New Era of Volatility (Bloomberg)

In a flash, the bond market went wild. What began on Oct. 15 as another day in the U.S. Treasury market suddenly turned into the biggest yield fluctuations in a quarter century, leaving investors worrying there will be turbulence ahead. The episode exposed a collision of forces – the rise of high-frequency trading and the decline of Wall Street dealers – that are reshaping the world’s biggest and most important bond market. Money managers say the $12.4 trillion Treasury market is becoming less liquid, meaning securities can no longer be traded as quickly and easily as they used to be, thanks in part to the Federal Reserve’s bond-buying program.

“The way the market is set up right now, we’ll see instances like we did on that day,” said Michael Lorizio, senior trader Manulife Asset Management, which oversees $281 billion. “There’s going to be a learning curve as to how to handle that.” The development reflects unintended consequences of new financial regulation, as well as steps the Fed has taken to breath life into the U.S. economy. The implications, however, extend far beyond Wall Street, because the Treasury market determines borrowing costs for governments, companies and consumers around the world. When the day began on Oct. 15, an unprecedented number of investors were betting that interest rates would rise and U.S. government debt would lose value. The news that morning seemed ominous. Ebola was spreading. So was war in the Middle East.

At 8:30 a.m. in Washington, the Commerce Department announced a decline in retail sales. The shift came all at once. The sentiment that the Fed would raise rates reversed. Traders who’d bet against, or shorted, Treasury bonds had to buy as many as they could as quickly as they could to limit their losses. By 9:38 a.m., 10-year Treasury yields plunged 0.34 percentage point, the most in five years. Analysts such as Jim Bianco, president of Bianco Research LLC in Chicago, blame the herd mentality of electronic traders. “A lot of these guys are focused on speed,” Bianco said. “They’re all uncreative and write the same program. When the stimulus comes in a certain way, every one of them comes to the same conclusion at exactly the same moment.”

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And we’ll see this as a positive, shall we?

Wall Street to Reap $316 Million From Day of Mega Deals (Bloomberg)

The five Wall Street banks that advised on $100 billion of takeovers announced yesterday by Halliburton and Actavis could reap as much as $316 million in fees for their work. Goldman Sachs and Bank of America will take home the lion’s share of that, with roles on both the $34.6 billion purchase of Baker Hughes Inc. by Halliburton, and the $66 billion acquisition of Allergan by Actavis. Goldman Sachs was the sole adviser to Baker Hughes, while Bank of America and Credit Suisse advised Halliburton. The three banks are set to receive as much as $143 million in total, Freeman & Co. said. Halliburton, the second-biggest oilfield services provider, agreed to buy No. 3 Baker Hughes, taking advantage of plunging crude prices to set up the biggest takeover of a U.S. energy company in three years. Actavis’s deal to acquire Allergan, meanwhile, will help the target rebuff a hostile approach from Valeant Pharmaceuticals International Inc.

Goldman Sachs and Bank of America were also advisers to Allergan, for which they may share as much as $92 million, according to Freeman. JPMorgan, meanwhile, may receive as much as $81 million as adviser to Actavis. Yesterday’s deals firmed up Goldman Sachs’s status as the No. 1 adviser on M&A, with almost $814 billion of total value to its credit. Morgan Stanley which didn’t have a role on either of the two large deals, ranks second with $653 billion of deals to its credit. Citigroup, which also didn’t have a role on either deal, slipped a spot in the rankings to No. 4, while Bank of America rose to third from fifth. The ranking lists, called league-tables, are used by banks when they pitch their services to clients. A strong track record can help them convince companies to hire them as advisers. “We are extremely proud of the performance and momentum of our M&A franchise and the strategic advice and solutions that we have delivered to our clients in 2014,” Citigroup spokesman Robert Julavits wrote.

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Fingers in your ears, a big bang is coming.

Australia’s Record-Low Rates To Head Further South (CNBC)

Australia’s economy faces myriad headwinds that could trigger interest rate cuts from the central bank, taking borrowing rates further south from current historic lows. “Leading indicators suggest that a case can be made for further cuts: Confidence is low and consistent with weak growth, inflation expectations are falling and the unemployment rate is rising,” Credit Suisse wrote in a note Friday, arguing that rates could fall to 1.5%. Consumer confidence slumped over 12% on year in November, according to a joint survey from the Melbourne Institute and Westpac, marking the ninth straight month of pessimists outnumbering optimists – the longest slump since the global financial crisis.

Meanwhile, Australia’s official jobless rate rose to a 12-year high of 6.2%in October. Lower inflation also paves the way for rate cuts, Credit Suisse said. Headline consumer price inflation cooled to an annual 2.3% during the third-quarter, the lower end of the central bank’s 2-3% target band. Most importantly, markets have started to price in cuts, it said. The dominant view among major banks is still for the Reserve Bank of Australia to hike interest rates in 2015, but Credit Suisse says the behavior of the spread between 10-year bond yields and the cash rate is “abnormal” and doesn’t reflect that view.

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One of multiple problems in US pensions.

US Pension Insurer Ran Record $62 Billion Deficit (AP)

The federal agency that insures pensions for about 41 million Americans saw its deficit nearly double in the latest fiscal year. The agency said the worsening finances of some multi-employer pension plans mainly caused the increased deficit. At about $62 billion for the budget year ending Sept. 30, it was the widest deficit in the 40-year history of the Pension Benefit Guaranty, which reported the data Monday. That compares with a $36 billion shortfall the previous year. Multi-employer plans are pension agreements between labor unions and a group of companies, usually in the same industry. The agency said the deficit in its multi-employer insurance program jumped to $42.4 billion from $8.3 billion in 2013. By contrast, the deficit in the single-employer program shrank to $19.3 billion from $27.4 billion.

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“The global economy has caught the equivalent of financial Ebola: deflation ..”

All Aboard The Instability Express (James Howard Kunstler)

The mentally-challenged kibitzers “out there” — in the hills and hollows of the commentary universe, cable news, the blogosphere, and the pathetic vestige of newspaperdom — are all jumping up and down in a rapture over cheap gasoline prices. Overlay on this picture the fairy tale of coming US energy independence, stir in the approach of winter in the North Dakota shale oil fields, put an early November polar vortex cherry on top, and you have quite a recipe for smashed expectations. Plummeting oil prices are a symptom of terrible mounting instabilities in the world. After years of stagnation, complacency, and official pretense, the linked matrix of systems we depend on for running our techno-industrial society is shaking itself to pieces.

American officials either don’t understand what they’re seeing, or don’t want you to know what they see. The tensions between energy, money, and economy have entered a new phase of destructive unwind. The global economy has caught the equivalent of financial Ebola: deflation, which is the recognition that debts can’t be repaid, obligations can’t be met, and contracts won’t be honored. Credit evaporates and actual business declines steeply as a result of all those things. Who wants to send a cargo ship of aluminum ore to Guangzhou if nobody shows up at the dock with a certified check to pay for it? Financial Ebola means that the connective tissues of trade start to dissolve, and pretty soon blood starts dribbling out of national economies.

One way this expresses itself is the violent rise and fall of comparative currency values. The Japanese yen and the euro go down, the dollar goes up. It happens in a few months, which is quickly in the world of money. Foolish US cheerleaders suppose that the rising dollar is like the rising score of an NFL football team on any given Sunday. “We’re numbah one!” It’s just not like that. The global economy is not some stupid football contest. When currencies change value quickly, as has happened since the past summer, big banks get into big trouble. Their revenue streams are pegged to so-called “carry trades” in which big blobs of money are borrowed in one currency and used to place bets in other currencies. When currency values change radically, carry trades blow up.

So do so-called “derivatives” such as bets on interest rate differentials. When the sums of money involved are grotesquely large, the parties involved discover that they never had any ability to pay off their losing bet. It was all pretense. In fact, the chance that the bet might go bad never figured into their calculations. The net result of all that foolish irresponsibility is that banks find themselves in a position of being unable to trust each other on virtually any transaction. When that happens, the flow of credit, a.k.a. “liquidity,” dries up and you have a bona fide financial crisis. Nobody can pay anybody else. Nobody trusts anybody. Fortunes are lost. Elephants stomp around in distress, then keel over and die, and a lot of “little people” get crushed in the dusty ground.

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Looks like a good book to get.

The Secret History Of Corruption In America (Stoller)

If there s one way to summarize Zephyr Teachout’s extraordinary book Corruption in America: From Benjamin Franklin’s Snuff Box to Citizens United, it is that today we are living in Benjamin Franklin’s dystopia. Her basic contention, which is not unfamiliar to most of us in sentiment if not in detail, is that the modern Supreme Court has engaged in a revolutionary reinterpretation of corruption and therefore in American political life. This outlook, written by Supreme Court Justice Anthony Kennedy in the famous Citizens United case, understands and celebrates America as a brutal and Hobbesian competitive struggle among self-interested actors attempting to use money to gain personal benefits in the public sphere.

What makes the book so remarkable is its scope and ability to link current debates to our rich and forgotten history. Perhaps this has been done before, but if it has, I have never seen it. Liberals tend to think that questions about electoral and political corruption started in the 1970s, in the Watergate era. What Teachout shows is that these questions were foundational in the American Revolution itself, and every epoch since. They are in fact questions fundamental to the design of democracy.

Teachout starts her book by telling the story of a set of debates that took place even before the Constitution was ratified – whether American officials could take gifts from foreign kings. The French King, as a matter of diplomatic process, routinely gave diamond-encrusted snuff boxes to foreign ambassadors. Americans, adopting a radical Dutch provision banning such gifts, wrestled with the question of temptation to individual public servants versus international diplomatic norms. The gifts ban, she argues, was evidence of a particular demanding notion of corruption at the heart of American legal history. These rules, bright-line rules versus corrupt-intent rules, govern temptation and structure. They cover innocent and illicit activity, as opposed to bribery rules which are organized solely around quid pro quo corruption.

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However you slice and dice it, that’s not a number from a recovering economy.

UK Grocery Sales In Decline For First Time In 20 Years (Guardian)

UK grocery sales have gone into decline for the first time in at least 20 years as a raging price war and the falling cost of food commodities hit Britain’s supermarkets. In good news for shoppers, the average price of a basket of everyday essentials such as milk, bread and vegetables now costs 0.4% less than it did a year ago, according to the latest figures from market research firm Kantar Worldpanel. But the figures highlight a painful few months for the UK’s biggest retailers with all of the “big four” supermarkets seeing sales fall back in the 12 weeks to 9 November. Tesco continues to be the worst performer with sales dropping by 3.7%, but Morrisons’ performance deteriorated at the fastest rate, with the slump in sales accelerating to 3.3%, from 1.3% a month ago.

Sainsbury’s trading figures also worsened, with sales down 2.5%. Asda’s sales also went into decline, for the first time in some months, although the Walmart-owned group was the only one of the big four to hold market share. Fraser McKevitt, head of retail and consumer insight at Kantar Worldpanel said: “The declining grocery market will be of concern to retailers as they gear up for the key Christmas trading season.” In a pattern that has continued throughout this year, the German discounters Aldi and Lidl continued to grow strongly, as did the up-market grocer Waitrose. But only Waitrose picked up the pace of growth, to 5.6%, shoring up its spot at the UK’s sixth largest supermarket. Aldi’s growth slowed to 25.5% from 29.1% last month, and more than 30% earlier this year, while Lidl’s growth slowed to 16.8% from 17.7% last month.

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Complaceny and hubris pay off.

1 in 5 UK Supermarkets Must Close To Restore Profit Growth (Guardian)

Supermarket chiefs need to take drastic action by shutting one in five of their stores if the financial health of the mainstream grocery chains is to recover from the damage being wreaked by altered shopping habits and the onslaught of the discounters, according to analysts at Goldman Sachs. A large closure programme is the only viable solution to bring about a return to profitable growth for the UK supermarket industry, the analysts said in a report. With 56% of Tesco’s stores bigger than 40,000 sq ft, the report concludes the market leader has the biggest problem on its hands. Profits at the three listed chains, Tesco, Sainsbury’s and Morrisons, have gone into reverse as weak food sales are exacerbated by the runaway growth of Aldi and Lidl. Further pressure is coming from structural changes in the market such as the growth of online and convenience store retailing.

Last week Sainsbury’s reported a first half loss of £290m as it counted the cost of pulling the plug on 40 new supermarket projects and wrote down the value of its underperforming stores. Goldman Sachs analyst Rob Joyce was gloomy about the ability of the major players to bounce back if the fight was based on price cuts alone. “We believe that any major price investments by Morrisons, Sainsbury’s or Tesco can be exceeded by the discounters,” he wrote. The unhealthy industry dynamic prompted him to predict large stores would suffer like-for-like sales declines of 3% a year until 2020, unless the big chains embrace the need for major surgery. Too much focus on profitability allowed the “discounters to get too strong”, with incumbents, until recently, reliant on pushing up prices to combat falling sales?, according to the report. But even Asda, which was the first of the big four to take on the discounters with a £1bn price cuts campaign, has started to show signs of strain.

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It’s a simple story.

Putin Warns He Won’t Let Ukraine Annihilate Eastern Rebels (Bloomberg)

Russian President Vladimir Putin warned he won’t allow rebels in eastern Ukraine to be defeated by government forces as European Union ministers met to consider imposing more sanctions on the separatists. “You want the Ukrainian central authorities to annihilate everyone there, all of their political foes and opponents,” Putin said in an interview yesterday with Germany’s ARD television. “Is that what you want? We certainly don’t. And we won’t let it happen.” German Chancellor Angela Merkel said yesterday the EU will keep its economic sanctions on Russia “for as long as they are needed.”

EU foreign ministers convened today in Brussels to discuss adding to sanctions that have limited access to capital markets for some Russian banks and companies and blacklisted officials involved in the conflict. New measures will likely target pro-Russian separatist leaders, the EU said. “Sanctions in themselves are not an objective, they can be an instrument if they come together with other measures,” European Union foreign policy chief Federica Mogherini told reporters before the meeting. She said the EU’s three-track strategy consists of sanctions, encouragement of reforms in Ukraine and dialogue with Russia. “We are very concerned about any possible ethnic cleansings and Ukraine ending up as a neo-Nazi state,” Putin said according to an English translation of his remarks published by the Kremlin.

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They’re afraid if they cut production, investors may pull out. So they keep on the treadmill until they blow up the entire thing.

Shale Drillers Plan Output Increases Despite Oil Price Decline (Bloomberg)

Shale drillers are planning on production growth with fewer rigs despite a worldwide glut that has sent crude prices to a four-year low. Companies including Devon Energy, Continental Resources and EOG Resources said they expect to pump more from their prime properties while cutting back in their least productive prospects. That puts the onus on OPEC nations, led by Saudi Arabia, to cut output if they want to stem the slide in global oil prices. “There’s a lot more production coming online this year and in the first half of 2015,” said Jason Wangler, an analyst at Wunderlich Securities. “This isn’t a machine that you can turn on and off with a switch. It’s going to take months, if not quarters, to turn it around.”

Domestic output topped 9 million barrels a day for the first time since at least 1983, the U.S. Energy Information Administration said Nov. 13. West Texas Intermediate crude, the U.S. benchmark oil contract, sank 18 cents yesterday to settle at $75.64 a barrel. Prices fell to $74.21 on Nov. 13, the lowest since 2010. “Certainly if prices fall even further than they are now, it’ll have some impact, and it may slow the growth rate of U.S. production,” said Jason Bordoff, founding director of Columbia University’s Center on Global Energy Policy in New York. “I still think, unless they fall significantly further, U.S. production is going to see dramatic increases in growth.”

Lower prices aren’t stopping U.S. shale drillers. Devon Energy, which pumped 136,000 barrels a day of crude in the third quarter, will boost output by as much as 25% next year, said John Richels, the company’s CEO, in a Nov. 5 earnings call. That rivals this year’s expansion, even though Devon will idle four of its six rigs in Oklahoma’s Mississippi Lime prospect. Continental Resources, which produced 128,000 barrels a day in the third quarter, trimmed $600 million from its 2015 drilling budget by shelving plans to add new rigs. Nonetheless, the Oklahoma City-based company said in its Nov. 6 earnings call it will increase output as much as 29%. Pioneer Natural Resources in Irving, Texas, the most active driller in West Texas’s Permian Basin, said in its Nov. 5 third-quarter call that it plans to add as much as 21%.

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Anything for a buck.

3 Billion Gallons Of Fracking Wastewater Pumped Into Clean CA Aquifers (ZH)

Dear California readers: if you drank tapwater this morning (or at any point in the past few weeks/months), you may be in luck as you no longer need to buy oil to lubricate your engine: just use your blood, and think of the cost-savings. That’s the good news. Also, the bad news, because as the California’s Department of Conservation’s Chief Deputy Director, Jason Marshall, told NBC Bay Area, California state officials allowed oil and gas companies to pump up to 3 billion gallons (call it 70 million barrels) of oil fracking-contaminated waste water into formerly clean aquifiers, aquifiers which at least on paper are supposed to be off-limits to that kind of activity, and are protected by the government’s EPA – an agency which, it appears, was richly compensated by the same oil and gas companies to look elsewhere.

And the scariest words of admission one can ever hear from a government apparatchik: “In multiple different places of the permitting process an error could have been made.” Because nothing short of a full-blown disaster prompts the use of the dreaded passive voice. And what was unsaid is that the “biggest error that was made” is that someone caught California regulators screwing over the taxpayers just so a few oil majors could save their shareholders a few billion dollars in overhead fees. And now that one government agency has been caught flaunting the rules, the other government agencies, and certainly private citizens and businesses, start screaming: after all some faith in the well-greased, pardon the pun, government apparatus has to remain:

“It’s inexcusable,” said Hollin Kretzmann, at the Center for Biological Diversity in San Francisco. “At (a) time when California is experiencing one of the worst droughts in history, we’re allowing oil companies to contaminate what could otherwise be very useful ground water resources for irrigation and for drinking. It’s possible these aquifers are now contaminated irreparably.”

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Our own countries are replete with mental slaves.

Modern Slavery Affects More Than 35 Million People (Guardian)

More than 35 million people around the world are trapped in a modern form of slavery, according to a report highlighting the prevalence of forced labour, human trafficking, forced marriages, debt bondage and commerical sexual exploitation. The Walk Free Foundation (WFF), an Australia-based NGO that publishes the annual global slavery index, said that as a result of better data and improved methodology it had increased its estimate 23% in the past year. Five countries accounted for 61% of slavery, although it was found in all 167 countries covered by the report, including the UK. India was top of the list with about 14.29 million enslaved people, followed by China with 3.24 million, Pakistan 2.06 million, Uzbekistan 1.2 million, and Russia 1.05 million.

Mauritania had the highest proportion of its population in modern slavery, at 4%, followed by Uzbekistan with 3.97%, Haiti 2.3%, Qatar 1.36% and India 1.14%. Andrew Forrest, the chairman and founder of WFF – which is campaigning for the end of slavery within a generation – said: “There is an assumption that slavery is an issue from a bygone era. Or that it only exists in countries ravaged by war and poverty. “These findings show that modern slavery exists in every country. We are all responsible for the most appalling situations where modern slavery exists and the desperate misery it brings upon our fellow human beings.

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That’s an excellent way to look at them.

Ebola Doctors: The Last Working Consciences In The Western World (Guardian)

Patients arrive at the Médecins Sans Frontières treatment centre in Sierra Leone 10 to an ambulance. The overcrowding means that by the time they get there, even those whose original symptoms may not have been Ebola will have been sufficiently exposed to catch it on the way in. Such is life in West Africa in the midst of the worst outbreak of the disease since it was first identified 38 years ago. Ebola Frontline – Panorama (BBC1) followed MSF doctor Javid Abdelmoneim – who, along with his colleagues, you can’t help but feel must be the owners of the last working consciences in the western world – on his month-long volunteer posting to the centre, treating some of the tens of thousands of people who have contracted Ebola since the epidemic began nine months ago.

Furnished with a specially adapted camera fitted to his goggles, one that can survive the chlorine sprayings and sluicings as part of the good doctor’s 20 minute decontamination procedure every time he leaves the tent full of his suffering and dying charges, we watch along with him as the disease plots its course through bodies, through families and through entire communities. People die quietly, for the most part. The loudest noise we hear is the wailing in grief of a woman who loses her sister. Their parents died before the cameras got there. Eleven-month-old Alfa is an Ebola orphan too, one of the estimated 10.3 million children directly or indirectly affected by the crisis. She dies alone, relieved of physical pain, Abdelmoneim hopes, by the morphine he gives her as her little body starts to fail, but “she looked frightened at the end”.

She is buried in a cemetery purpose-built for bodies that remain biohazards after death, one of hundreds of people marked only by patient ID numbers scrawled on paper labels attached to sticks driven into the ground. While the volunteer doctors, nurses and staff try to hold the line at the treatment centre – whose name they change to “case management centre” in recognition that all they can give is supportive, not curative care – the voiceover keeps us abreast of the rising death toll in Africa and the ponderous reactions and non-reactions of other nations to the crisis, and the delivery and non-delivery of promises and aid to the stricken regions. Last month the UN called for a twentyfold increase in help. Half of that has so far been donated. A plague on all our houses.

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Home Forums Debt Rattle November 18 2014

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    Dorothea Lange Saturday afternoon, Pittsboro, North Carolina Jul 1939 • Japan PM Abe Calls Snap Election, Delays Sales Tax Hike (CNBC) • Japan Prepare
    [See the full post at: Debt Rattle November 18 2014]

    #16691

    SteveB
    Participant

    “Looks like a good book to get.”

    Must be multiple volumes, though, right?

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